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UK's Next has solid Christmas without cutting prices

Next signaled brighter prospects for British retailers on Tuesday with a solid rise in Christmas sales, especially online, without resorting to the discounting seen on many shopping streets.

The British fashion company has outperformed rivals for a decade thanks to its strong online business, new stores and diversification overseas and into areas such as homewares.

The group's skills in multichannel shopping across stores, catalog and online, helped to produce a 2.9 percent increase in sales from Oct. 28 to Dec. 24, at the upper end of its expectations.

Next, the first big British retailer to report on the holiday season, benefited from its policy of not cutting prices before Christmas. And it did not take part in "Black Friday" promotions in late November that sent Britain's retail sales growth to a 27-year high.

Shoppers pass a branch of Next on the high street in December in Bath, England.
Matt Cardy I Getty Images
Shoppers pass a branch of Next on the high street in December in Bath, England.

Before Black Friday, retailers had been having a tough time due partly due to a mild autumn that hit sales of winter fashions. Muted wage growth in Britain has also forced consumers to keep spending under control.

Chief Executive Simon Wolfson said Christmas had been a little bit better than he had expected back in the autumn, when warm weather was hurting sales of winter clothes. This forced Next to cut its profit guidance and fourth-quarter sales expectations.

"We had discounted all the bad news in October," he said.

Full-price sales at Next dipped slightly in the week of Black Friday, a phenomenon imported from the United States, but rose week-on-week in the run up to Christmas.

Wolfson said Next also had a successful post-Christmas clearance, with more stock on offer than a year earlier.

The group said it now expected profit for the year to Jan. 24 to rise 11.5 percent to be within 10 million pounds ($15.5 million) either side of 775 million pounds, 5 million pounds ahead of the midpoint guidance it issued in October.

Next's shares, which have risen 22 percent in the last 12 months, rose as much as 3.9 percent on Tuesday.

Neil Saunders, managing director of retail consultancy Conlumino, said Next outperformed for a number of reasons.

"Its range is well priced and well positioned and so it easily captures a large share of shoppers. It is also a leader in multichannel, which makes it convenient and easy place to shop," he said. "Its policy of not discounting outside of sales periods is highly beneficial for margins and profits."

Next's Directory Internet and catalogue business was the standout performer in the run up to Christmas with a 7.5 percent rise in sales. Sales in its stores rose 0.5 percent, it said.

"More people were doing their Christmas shopping online than last year, and that trend seems to be continuing," Wolfson said.

But stores remained central to its growth strategy, he said, with about half of online orders picked up in shops.

Researchers Mintel had predicted European online retail sales would rise 17 percent to 193 billion euros this year, up from 15 percent in 2013.

But there is also evidence that a greater proportion of this growth is from shops offering customers the option of picking up online orders in store.

Wolfson said the outlook for the British consumer looked relatively benign, and he said an end to the decline in real wages boded well for the retailer. But he remained cautious about the group's sales budget for the year ahead.

Wolfson said Next would open about 350,000 square feet of new space in the coming year, and some could come from land owned by grocers. "There are some sites that supermarkets have where we would be interested in taking additional space."

Next said it would pay a further special dividend of 50 pence a share.

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