High Street or Online? Kingfisher, Next See Profit in Different Directions

Kingfisher and Next are placing very different bets on the future of UK retailing as end of year profits raise the question of whether high street stores or the online market give the best prospects for growth.

Kingfisher, Europe's biggest home improvements retailer, posted pre-tax profits of £807m, topping analysts' average forecast of £799m, on sales of £10.8bn - a 3.6 percent from last year. Next, Britain's second-largest clothing retailer, said pre-tax profits rose £26.9m to £570.3 million.

While the companies' success in a tight consumer economy appears to suggest a ray of sunshine for retailers, their plans for the future point in different directions.

Kingfisher, which already runs 950 stores in eight countries, including France's Castorama and B&Q here in the UK, plans to promote its growth through the opening of 67 new stores in the next year, alongside actions to improve its profit margins.

"Whilst the immediate economic outlook remains uncertain, we face the future in robust shape and with our successful self-help approach now embedded in the way we do business," said Kingfisher chief executive Ian Cheshire.

He told Bloomberg News Thursday his group had been dealing with a "flat" consumer market for the past three years but he expects the company to become a global leader in the sector over the next five years.

In contrast, Next saw its most significant growth in its online Next Directory business, which accounted for 32 percent of £3.5bn in group sales and 44 percent of operating profit.

Next operates around 500 stores in the UK and Ireland, with a further 180 in more than 30 countries overseas, but Chairman John Barton attributed the steady growth of its online Next Directory as a crucial factor in the successful year.

"The key ingredient of our success is the stability and effectiveness of our management teams across the group. They have had a successful year and I would like to thank them for their contribution towards this performance," he said.

The gradual shift off the high street and into internet shopping appear signalled by the company's cautious budgeting for the next year and admission that the retail outlook remained "very uncertain".

Next saw underlying earnings per share, before exceptional profits, grow by 15 percent to 255.4p, up 15.1 percent, which Barton hailed as "an excellent result in a year when the UK economy, our largest market, has struggled for growth."

The company is budgeting for a jump in sales between 1 percent and 4 percent in the first half of its financial year, with full-year margins remaining stable.

It predicted a full year pre-tax profit of between £560m and 610m, with an earnings per share growth increase in the region of 3 percent to 12 percent.

"During 2011 our share price and dividend performance ranked Next as the second best FTSE100 Company of the year. It is worth noting that over the last three years our earnings per share have grown at an annual compound rate of 18 percent," said Barton. "Next year will bring its own challenges, particularly as growth in the UK will remain sluggish. We continue to believe that we will deliver growth by investing in the brand, improving our products and managing the business well."