Next profits down by more than half

High street fashion chain Next has said profits for the year to January 30 were slashed by more than half after its stores were shut for much of the period.

But the group also raised its profit forecast for the current trading year, thanks to soaring online sales in the past eight weeks.

Next told investors yesterday online sales since the start of February were “stronger than expected” and more than 60% ahead of the same period two years ago.

The retailer is, therefore, expecting to post pre-tax profits of £700 million for the 2021-22 financial year, up from its previous target of £670m.

Outlining its outlook for the year, the group said it believed the UK consumer economy would, at least in the short term, “be healthier than many presume”.

Chief executive Lord Wolfson said it was likely that a “combination of pent-up demand, along with a healthy overall increase in personal savings” would help to buoy consumer spending.

He said: “We can’t read too much into it yet but I think it’s clear that, for many, consumer finances are in very good shape.

“We never try to be overly optimistic but I’d say we certainly are not pessimistic right now.”

The retail boss said he expected some of the shift towards online shopping by customers to become permanent.

He added: “People will want to shop in stores and online but it still feels early to predict how stores are likely to fare.”

Next said it was also working on the assumption that the Covid-19 vaccine roll-out will mean its stores stay open for the rest of the year.

But it also warned it is unlikely to meet its sales and profits guidance for the year if this assumption does not prove correct.

Pre-tax profits during the year to January slid by 54% to £342m, compared with the same period last year.

The company said the slump was driven by Covid19 costs and lower sales due to lockdown restrictions, with group sales dropping by about 17% to £3.6 billion for the year.

Next’s results left marketwatchers wondering how committed the company is to its bricks and mortar estate, particularly in light of department store chain John Lewis announcing store closures recently.

Russ Mould, investment director at financial services firm AJ Bell, said: “While the company (Next) has appeared to rule out further closures in the current financial year, it is clear it is prepared to be tough with landlords as it looks to get occupancy costs down.

“As one of the few reliable rent payers in the sector, Next is in a very strong bargaining position. And by pushing for reductions, it looks like it will just about be able to stay profitable on its retail stores this year.

“Next should also benefit from the exit of weaker rivals from the market – there is little doubt that it is one of the few remaining unburnished stars in the UK retail space.”

Mr Mould added: “The shops potentially also have a role to play in showcasing Next products, alongside being a hub to collect stuff bought online – with recent examples of stores helping with some of the logistics attached to fulfilling online orders.

“The company’s ability to respond to the pandemic has been impressive and is reflected in its continuing profitability.”

RETAIL MODEL: Next saw stronger online sales but is keeping its commitment to physical stores under review.