Next boosts full-year earnings outlook
● Sales rebound after H1 plunge but retailer cautious over festive sales
Retail giant Next has upped its full-year earnings outlook for the second time in as many months after strong recent trading, but said new coronavirus restrictions could hamper Christmas sales.
Chief executive Lord Simon Wolfson said that despite a recent surge in summer sales, he was cautious about the rest of the year as the furlough scheme ends and social gatherings are limited.
The latter is “likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers,” he stated.
While full-price sales plunged 33 per cent in its first half, Next stated thattr ading since the lo ckdown has proved resilient thanks to a strong online performance – with sales lifting 4 per cent in the past seven weeks.
The fashion chain said it expects full-year underlying pre-tax profits of £300 million, down heavily on the £729m the previous year, but up from the £195m predicted in July.
Lord Wolfson said the most recent sales surge is unlikely to be maintained, having been boosted by cooler weather and as fewer Britons travelled abroad. He said: “There are all sorts of reasons why peo - ple should be cautious about these numbers–we’ re not expecting the rest of the season to carry on like that.”
The group still expects sales to plunge 12 per cent for the rest of its financial year as the UK government’ s furlough scheme for workers ends on 31 October and amid fears of a second wave of the virus.
The retailer revealed it has set aside £20m for bad debts as it is bracing for arise in customers on credit falling behind with payments once the furlough scheme ends.
But Lord Wolfson said that while “things will get tougher,” he is not expecting a severe slowdown in the wider economy after furlough ends.
Even with a 12 per cent sales fall for the remainder of its financial year, Next said this would leave overall annual sales 20 per cent lower – far better than the 30 per cent prediction in April.
The firm warned that if a second wave of the pandemic sees more widespread lockdown measures and store closures, then sales could fall by 34 per cent over the full year.
But Lord Wolfson said the group is better prepared for further Covid-19 restrictions and will be able to keep its warehouse and online operation running throughout.
Next’s half-year results showed it slumped to a pre - tax loss of £16.5m for the six months to the end of July against profits of £327.4 ma year earlier. On an underlying basis, it saw profits crash 97 p er cent to £9m, though it had initially expected to be loss-making. Total online sales jumped 14 per cent, while shop sales tumbled 61 per cent after they were forced to close during the lockdown.
John Moore, senior investment manager at Brewin Dolphin, said: “As we have seen in announcements elsewhere, adapting to the challenges of Covid-19 has been costly; still, Next’s sales have recovered well from their trough in March and volumes reported appear encouraging relative to expectations. The retailer will learn a lot from the Covid-19 crisis and, with stronger finances, should be in an even better position than its peers to capitalise on future opportunities and recovery.”
“Next’s sales have recovered well from their trough in March and volumes reported appear encouraging relative to expectations”
ANALYST JOHN MOORE