Next lowers FY guidance on weak Q1 clothing sales
Next clothing sales suffered due to cold weather
UK fashion and home retailer Next has lowered its full-year sales guidance as cold weather in March and April reduced demand for clothing in its first-quarter.
Total sales in the three months ended 2 May were down 0.2%, with full price sales down 0.9% at the lower end of the group's guidance for the full year of -1% to +4%. Next retail sales were also down by 4.7%, while directory sales grew 4.2% thanks to better stock availability.
As a result, Next said it now expects full-price sales to be between -3.5% and +3.5%. This is the second time the firm has cut its full-year guidance for sales, having previously done so in March when CEO Lord Wolfson said the year ahead would be the most difficult since the financial crisis.
"We believe it is unlikely (but possible) that sales will deteriorate further, and we have seen a significant improvement over the last few days as temperatures have risen," Next said. "However, the poor performance of the last six weeks may be indicative of weaker underlying demand for clothing and a potentially wider slow-down in consumer spending."
Bernstein Research analyst Jamie Merriman believes the reduced guidance seems warranted given the uncertainty about the upcoming Brexit referendum and the recent deterioration in sales trends.
He adds: "Management do note that there has been a 'significant improvement over the last few days as temperatures have risen'. The company intends to return a further [approximately] GBP80m to shareholders in this fiscal year, but that is unlikely to be enough to provide meaningful share price support here."
Meanwhile, Nivindya Sharma of Verdict Retail says Next is starting to take more risks with buying and design, "buying closer to the season, and being more flexible with phasing, all of which it admits will require a big cultural shift internally; but will be essential to safeguard itself in light of consumers' changing shopping patterns".
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