Next rings up bumper Christmas as online sales surge boosts profits
Next rang up £70m more sales than expected over Christmas as a surge in online orders of party dresses and occasionwear made up for lower trade in stores.
The fashion and homewares chain is the first retailer to report its Christmas trading results, potentially giving an indication of how the high street fared in the biggest sales period of the year.
The group said it now expected to make £822m in annual profits, £22m more than previously hoped for and almost 10% ahead of pre-pandemic levels, in its fifth increase in guidance in less than a year.
In the eight weeks to Christmas Day, Next said its sales rose 20% on 2019 – before the Covid pandemic – despite suffering “materially lower” levels of stocks than it had hoped for while its delivery service had struggled because of labour shortages in its warehouses and distribution networks.
“The fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period,” the company said.
The group’s strong performance was underpinned by an 85% surge in full-price online sales compared with 2019 at its Label business which sells brands such as Ted Baker, Nike and Mint Velvet. Online sales of Next goods in the UK and overseas were also up by more than 30% in the three months to 25 December while sales in its UK and Irish stores fell 5.4%.
However, Next warned of a “tougher environment” for the year ahead despite assuming no further disruption from the pandemic.
The company said it was unclear how much it had benefited from shoppers spending their savings built up during lockdowns and whether a return to spending on holidays and other social activities would hit sales of nonessential goods such as clothing.
The group also said trade could be affected by rising inflation. Next expects its prices to increase by almost 4% this spring and summer while the price of its autumn ranges would be 6% ahead of last year because of higher freight and manufacturing costs.
The company said that average wages were also set to rise by 5.4% across the group driven by the April increase in the legal minimum wage as well as shortages of warehouse and technology workers.
Richard Lim, the chief executive of Retail Economics, said:“These are mightily impressive results and demonstrate the growing strength of the brand and its agility to operate through the ongoing challenges posed by the pandemic. The results shine an optimistic light on the resilience of consumer demand and the effortless transition shoppers now make between buying online and in-store. “The outlook for 2022 looks more challenging. For many households, this year will be a ‘pinch point’ as the combination of tax hikes and a rise in the cost of living erode incomes.”
Despite the concern about cost rises, Next said it would pay out £205m to shareholders, or 160p per share, in a special dividend at the end of January.