Next raises profit outlook after sales boost, but remains wary over Christmas
The fashion chain expects full-year underlying pre-tax profits of £300 million, up from £195 million predicted in July.
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 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.
He said England’s new “rule of six”, capping indoor and outdoor social gatherings to six people, was “likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers”.
While full-price sales plunged 33% in its first half, Next said trading since the lockdown has proved resilient thanks to a strong online performance – with sales lifting 4% in the past seven weeks.
The fashion chain said it expects full-year underlying pre-tax profits of £300 million – down heavily on the £729 million the previous year, but up from the £195 million previously predicted in July.
Shares lifted 3%.
“There’s all sorts of reasons why people should be cautious about these numbers – we’re not expecting the rest of the season to carry on like that,” he said.
The group still expects sales to plunge 12% for the rest of its financial year as the Government’s furlough scheme for workers ends on October 31 and amid fears of a second wave of the virus.
The group revealed it has set aside £20 million for bad debts as it is bracing for a rise in customers on credit falling behind with payments once the furlough scheme ends.
But Lord Wolfson said while “things will get tougher” he is not expecting a severe slowdown in the wider economy after furlough ends.
Even with a 12% sales fall for the remainder of its financial year, Next said this would leave overall annual sales 20% lower overall – far better than the 30% prediction in April.
It warned if a second wave of the pandemic sees more widespread lockdown measures and store closures, then sales could fall by 34% 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.
Steve Clayton, manager of the HL Select funds at Hargreaves Lansdown, said: “Next is now positioned to seize the opportunities created by its competitors’ difficulties.
“The group has a hugely cash generative online business, whilst its stores remain financially robust and increasingly able to negotiate lower rents.
“We expect to see Next winning market share hand over fist in the next few years.”
Next’s half-year results showed it slumped to a pre-tax loss of £16.5 million for the six months to the end of July against profits of £327.4 million a year earlier.
On an underlying basis, it saw profits crash 97% to £9 million, though it had initially expected to be loss-making.
The results revealed total online sales jumped 14%, while shop sales tumbled 61% after they were forced to close during the lockdown.