Next’s strong festive performance sets bar high
HIGH street footfall over the crucial Christmas period painted a dark picture. The decline was the worst seen in many years.
Next isn’t immune – its sales from bricks and mortar shops are in decline. So far this year, these have fallen 4.6 per cent. But the group has a strong online business, meaning overall sales are actually rising, and came in above Next’s own expectations.
This is interesting, because for many retailers, online shopping is still more of a conundrum than a cash cow.
Failure to get their own online divisions up to scratch has caused headaches for department stores and traditional clothing retailers. Next’s advantage comes from its history as a catalogue company. When the online boom took off, it had infrastructure in place to capitalise.
In the fourth quarter of the year, Next’s online sales rose 15.3 per cent. For the year-to-date they’re up 12.1 per cent.
The other reason Next stands out is because it’s still opening new shops. Unlike others who are shutting doors, often due to burdensome long-term leases, Next’s rental agreements are usually short.
Added to that, shops play an important online role. The majority of online returns are made in store, and they also serve the popular click and collect function. The group has upgraded full-year profit expectations by £2million, to £727million.
It’s not all perfect. Next needs to get the balance right between new shop space and monitoring the decline in store footfall. New rules also mean the timing of tax payments has changed, so Next expects debt to increase.
In order to pay that down, Next will cut the amount it pays shareholders by £35million in the years ending January 2021 and January 2022. Some £145million is still set to be returned to investors in the first half of next year through share buybacks, and there’s a prospective yield of 2.6 per cent.
Overall, Next has set the bar high for Christmas trading. We’ll be waiting to see if the results mark the start of more positive news for the sector as a whole.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”