Nov 3, 2010
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Next warns of clothes price hike, Q3 shop sales fall

Nov 3, 2010

LONDON, Nov 3 (Reuters) - Next (NXT.L), Britain's No. 2 fashion retailer, said consumers are facing near double-digit price rises for clothes next year, as it posted a slightly bigger-than-expected fall in third-quarter sales at its shops.

Next plc

The group, which runs over 500 stores in Britain and Ireland as well as the Directory home shopping business, said on Wednesday it expected fourth-quarter total sales growth to be lower than the third quarter's 2.2 percent but maintained its guidance for year to end-Jan. 2011 profit.

"We're planning very conservatively for 2011 but not (for) a disaster," Chief Executive Simon Wolfson, who was named a Tory working peer in May, told Reuters in an interview.

He warned that due to further rises in the price of cotton, retail price increases were likely to be at the top end of Next's previously stated 5-8 percent range for the first quarter of 2011. Higher rises could follow in the second quarter.

"Because we've bought most of the stock for the first-quarter of next year we can be fairly confident that our number at the top end of that range is right," said Wolfson, who has just returned from a visit to factories in Bangladesh and India.

"We still haven't contracted for the second quarter and if cotton prices continue to go up then that may nudge that (range) up. The price of cotton seems to be moving very rapidly and somewhat irrationally and it's very difficult to make a call."

Wolfson's comments on prices chimed with a survey from the British Retail Consortium which earlier showed a pick-up in shop price inflation.

Shares in Next, which prior to Wednesday's update had increased by a quarter over the last year, outperforming a 7 percent rise in the UK general retailers index .FTASX5370, were down 3.1 percent at 2,160 pence at 1014 GMT, valuing the business at 3.97 billion pounds ($6.37 billion).

"The Q3 statement was generally OK from a profit point of view ... but has added another layer of uncertainty on pricing in 2011 that is not very helpful," said analysts at Credit Suisse.

Next said sales at shops open at least a year fell 3.3 percent in the third quarter to Oct. 30. That compares with analysts forecasts for a fall of 0.3-3 percent, according to a Reuters poll, and a second-quarter decline of 2.2 percent.

That shortfall was offset by Directory sales growth of 7.9 percent, which compared with forecasts of a rise of 5-8 percent and a second-quarter increase of 11.8 percent.

Next said it was sticking with its forecast for underlying retail sales to fall by 1.5-4.5 percent in its second half, with Directory sales up 4-8 percent.

It also maintained it forecast for full-year pretax profit to rise 6-11 percent to 535-560 million pounds, with earnings per share of 214-224 pence, a rise of 14-19 percent.

Many retailers fear the 81 billion pounds of spending cuts announced by the government last month, as well as tax rises and a slowing housing market, will hit consumer demand.

However, the two most recent surveys said consumer confidence and sales actually improved in October.

Last week Stuart Rose, the chairman of Marks & Spencer (MKS.L), Britain's No. 1 clothing retailer, said the Christmas trading period would be "hard fought, but ... OK", while earlier this week John Lewis [JLP.UL], the UK's biggest department store retailer, raised its forecast for second-half sales growth.

(Editing by Mark Potter and Erica Billingham)

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