Next lifts profit forecasts

Next has delivered a surprise lift in festive sales and marginally upgraded its profit guidance after beating City forecasts.

The bellwether retailer, which warned in November that trading was “extremely volatile”, has reported a 1.5 per cent lift in sales for the 54 days to Christmas Eve. This comfortably beat its own guidance of a sales fall of 0.3 per cent and analyst expectations of a 0.5 per cent slump, providing some much needed cheer to the retail sector. Shares in the retailer were up 8.89 per cent in morning trade at £49, reports The Telegraph.

Shop sales fell by 6.1 per cent during the fourth quarter while online sales, which include sales of other brands through its Directory business, grew by 13.6 per cent.

As a result, total Next brand sales grew by 1.5 per cent, although 1.1 per cent of that was from new shops.

Next said the improvement in sales was partly “down to much colder weather in the run-up to Christmas”. Like most fashion retailers Next suffered a dreadful October as warmer temperatures dampened shoppers’ enthusiasm for buying winter coats and jumpers.

This encouraged much of the high street to take desperate action and start discounting before Christmas and during Black Friday, which Next participated in for the first time. Nonetheless Next reported that the amount of stock it sold at a discount was down 6 per cent on the year before.

The retailer added that its better-than-expected full-price sales meant that it would marginally lift its central profit guidance by £8m to £725m to give a new range of between £718m to £732m.

The upbeat Christmas trading is a stark contrast to last year when Next spooked the retail sector with a shock profit warning and a fall in sales which resulted in £1bn being wiped off its market value. The bleak update set the tone for most of the year with Moody’s warning that it would face “weak or anemic earnings growth” this year.

Next said that it still faced many of the same challenges as last year including “subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing and inflation in our cost prices”.

However, the retailer expects that some of those “headwinds will ease as we move through the year”, particularly as cost price inflation from a weaker pound will reduce to 2 per cent in the first half and disappear in the second. Last year Next had to raise shop prices by up to 5 per cent to cover the higher costs resulting from the sterling slump.

Next expects profit to be lower next year at £705m as operational costs grow faster than its sales but it will hand an estimated £300m of surplus cash back to investors in 2019 via a share buyback. The company reports its full-year results for 2017/2018 on March 23.