September 13, 2012 / 11:03 AM / 6 years ago

UK's Next and John Lewis caution growth may stall

LONDON (Reuters) - Next (NXT.L) and John Lewis JLP.UL, two of Britain’s best performing retailers, warned of a slowdown in an already troubled sector, dampening hopes that consumers might help return the economy to growth.

Next, Britain’s second biggest clothing retailer behind M&S, said on Thursday sales in August and September were disappointing, while department stores and food group John Lewis said consumer demand “remained fragile” and it did not expect its heady rate of growth to continue.

Both Next and privately-owned John Lewis reported strong first-half profits, having been two of the best performers in a troubled retail sector, so their concern is bad news for a UK economy that tipped back into recession in the first quarter and is heavily reliant on consumers to return it to growth.

Last week a retail survey said underlying sales fell in August as the London Olympics failed to provide the hoped for boost to demand, but hopes of improving economic prospects had been raised on Wednesday by data showing more Britons were in work.

The trading updates on Thursday hit shares across the sector with Next down 6.6 percent and other clothing retailers Marks and Spencer (MKS.L) and Debenhams (DEB.L) down 1.25 percent and 2.3 percent respectively.

The gloomier news followed comments by Kingfisher (KGF.L), owner of DIY firm B&Q, and J Sainsbury (SBRY.L), Britain’s third largest grocer, which said on Wednesday there were signs of a post Olympics feel good factor in the UK. [ID:nL6E8K7LFL]

Next’s Chief Executive Simon Wolfson said the firm had not yet worked out why its sales had slowed, whether it was due to the distraction of the Olympics and Paralympics, warmer weather at the end of the period or the economy.

“I don’t think we’ll be able to tell exactly which one of them it is until we get through to mid-October,” he told Reuters.

Next, which has over 500 stores in the UK and Ireland plus nearly 200 stores overseas, as well as an online and catalogue business, stuck with its 2012 sales and profit targets after reporting a 10.2 percent rise in first half pretax profit to 251 million pounds ($404 million), in line with expectations.

John Lewis posted a 60 percent rise in first-half pretax profit to 144.5 million pounds as both its department stores and upmarket Waitrose grocery chain outperformed rivals, benefiting from more investment.

The employee-owned firm outperformed because its more affluent customers have been less impacted by Britain’s economic downturn, while improvements to products and service and new modern stores have chimed with consumers.

John Lewis said it also benefited from events this year such as Queen Elizabeth’s Jubilee and the Olympics.

“Consumer demand remains fragile, but has stabilized,” said the group’s Chairman, Charlie Mayfield.

He said the firm had made a good start to the second half, with department store sales up 13.1 percent and Waitrose sales up 8.7 percent.

“Our rate of growth will remain positive but will be slower in the second half and, with further investment planned in that period to strengthen our business for the longer term, the rapid rate of profit increase is not expected to be carried through to the full year,” Mayfield said.

Britain’s biggest household goods retailer, Home Retail HOME.L raised hopes that its trading had stabilized. Its Argos business posted a better than expected 1.4 percent rise in underlying second quarter sales after a turbulent year.

Chief Executive Terry Duddy said the firm was on track to meet full year profit forecasts but cautioned the outcome was dependent on trading over Christmas.

“I think consumers are still under a lot of pressure,” he told reporters. Home Retail shares fell 2.7 percent.

Elsewhere, British home furnishings retailer Dunelm (DNLM.L), posted a 15 percent rise in full-year profit, helped by new store openings, sending its shares up 1 percent.

Meanwhile Darty DRTY.L, the struggling London-listed French electricals retailer, parted company with CEO Thierry Falque-Pierrotin and announced cost cuts to placate investors losing patience with falling sales and a flagging stock price. Its shares fell 1.4 pct.

Reporting by James Davey and Neil Maidment; additional reporting by Kate Holton and Karen Rebelo; Editing by Elaine Hardcastle

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