Next boosts bottom line after rent renegotiations

Next has scaled back on store openings and made cost savings through rent renegotiations, while seeking “new avenues of growth”. Next chief executive Lord Wolfson said that rents and rates are “beginning to adjust to the new reality” of demand in the retail sector after the pandemic. However, chairman Michael Roney said the retailer has budgeted for “a difficult year”. Sales were up 8.4% to £5.1bn for the year ending January, with pretax profits rising by 5.7% to £870m. Part of that profit was achieved through renegotiations with landlords over rents. The retailer said it had saved 30% on its lease renewals over the past 12 months. Next renewed 62 leases, cutting the costs from £37.1m to £26m. In addition, it received £6m in rent frees but planned to spend £21m in capex on those stores. A further 75 store leases will come up for renewal before January 2024, with Next anticipating a further 34% reduction of £8.9m. The retailer closed 17 mainline stores over the year but opened six clearance stores, reducing its portfolio from 477 to 466. Two of the closed stores were profitable, but Next said it had failed to agree acceptable terms with the landlord. Its total estate shrank from 8.4m sq ft to 8.25m sq ft. Capex for retail space expansion fell to £8m, compared with £14m in the previous year, owing to fewer store openings. The retailer said that it expected capital expenditure on warehouses to fall from £117m over 2022 to £75m to January 2024. Next said that the £75m allocated over the next year would not include any new space but would be used to finish its Wakefield and Doncaster warehouses. Around £77m of the previous year’s investment was in Next’s Elmsall 3 warehouse in Wakefield, which it sold for £91m in a sale and leaseback deal with Aviva Investors in May 2022. Wolfson said the retailer is now looking towards new paths for growth. He said: “The big question is whether the company’s modest growth over the last eight years is indicative of its prospects going forward or can it return to higher levels of growth more in keeping with its longer-term performance. “As it stands today the group has far more ideas and opportunities for long-term growth than it has had for some time. And while the year ahead looks very challenging, we are not facing the kind of long-term structural obstacles that we have overcome in the past eight years.” The news comes after the retailer bought the brand and IP rights to lifestyle brand Cath Kidston, which will result in the closure of the latter’s four stores. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo © Dinendra Haria/Shutterstock