Heatwave sees sales surge at retailer Next
But high street still proving challenge
THE RECENT heatwave has boosted fashion giant Next as an 11.4 per cent surge in Directory sales helped offset another steep fall across its high street stores.
Next said the warmer weather, together with an overhaul of its product ranges and online offering, saw total full-price sales rise by a better-than-expected 0.7 per cent in its second quarter to July 29.
This marked an improvement on the 3 per cent drop seen in the previous three months and came despite a 7.4 per cent drop in sales across its high street shops.
The group said: “We believe there has been some improvement in our product ranges and our online functionality during this period.
“However, we believe most of the increase in full price sales is due to the much warmer weather and, to a lesser degree, lower markdown sales in the end-ofseason sale.”
But the group stuck by its guidance for full-year profits to fall by between 6.4 per cent and 13.9 per cent to £680m and £740m, although it slightly improved its sales outlook.
The bounce-back meant Next enjoyed its first full-price sales rise for a year, with a monthly breakdown showing sales lifting as much as 3 per cent in June and 3.9 per cent in July.
But while full-price sales returned to positive territory, total sales including markdowns fell 2.1 per cent in the quarter as it was left with less stock to shift in its clearance.
Markdowns tumbled 14 per cent as a result, Next said.
Lord Wolfson, chief executive of Next, struck a more upbeat tone but remained cautious.
He said: “I’m marginally less pessimistic than I was three months ago and it’s encouraging to see some of the improvements coming through on Directory.
“But I still think we’re in a very difficult consumer environment for clothing, so we’re being very cautious about the rest of the year.”
Lord Wolfson added: “It’s been a better half, but we’re not getting too excited.”
He said that the consumer outlook for the high street remains “very tough” and is forecasting Next’s second-half full-price sales to remain lower – down 1.2 per cent, in line with the first half.
Lord Wolfson said: “Consumers are very cautious – real earnings are moderately down because wages aren’t rising as fast as inflation.
“People aren’t in the mood to splurge, particularly on clothing.”
Although UK retail spending is shifting online, Next is continuing to expand its store base. A further 150,000 sq ft of selling space is targeted for 2017-18 and 250,000 sq ft the following year.
George Mensah, a retail analyst at Shore Capital, said Next has delivered a “notably improved period of trading”.
He said while high street sales were still in the “doldrums”, trading across the Directory arm was “materially stronger than our forecast”.
Alistair Davies, analyst at Investec, said: “Bears will point to ongoing weak trading within Next Retail – we think this misses the point that Next is a well-invested business that has the operational flexibility to deal with structural challenges posed by the sector’s shift online.”