Wolfson's Next trick was home shopping revolution

Snow cost Next £22m of full-price sales, and like-for-like turnover in the pre-Christmas period slumped 6%; its chief executive, Simon Wolfson, confessed to scoring "own goals" in ordering too few bestselling lines; and he warned that the trading outlook was "uncertain" as price rises combined with cuts in government spending. This tale of supposed woe, however, sent Next's shares up 4.4%. What happened? The short answer is that Wolfson is a master of managing expectations. He can afford to emphasise the negatives because investors will always spot the resilience of Next's business. Profits for the year will still be up 7%-10% at £540m to £555m. Better still, earnings per share will rise 15% to 18% as the group continues to buy in shares. Few mainstream retailers will match that. The secret of Next's resilience can be explained in part by steady growth of its directory business, launched 23 years ago and now contributing a third of turnover. The Wolfson retailing clan has always believed in the power of home shopping – the dynasty, don't forget, was founded with Great Universal Stores, once the catalogue king of the UK. In the internet age, Next Directory has left its rivals behind and compensated for bouts of weakness on the high street. Marks & Spencer, which never used to be bothered about home shopping, is now struggling to catch up. One day M&S and the rest may cause greater problems. But the Next formula – manage stock levels tightly and spend excess cash on share buy-backs – will probably not be upset by a rise in VAT and higher cotton and shipping prices. The greater danger would be a rise in interest rates, hitting young homeowners with mortgages, who are the core of the Next customer base. A steep rise in rates is (probably) not this year's story, which is why investors are happy to trust that Next will again produce profits of £500m-plus next year: the trend towards online shopping should continue to work to the group's advantage. But Wolfson's warnings about uncertainties for retailers is nevertheless real – it's just that others are more directly in the firing line.