UK clothing and homewares retailer Next Plc has seen its sales stage a partial recovery in the second quarter after they were dealt a big blow during the coronavirus lockdown. Investment in online capabilities, warehouse capacity and a strong balance sheet have all helped, and the company is now confident of booking a full-year profit. Industry experts offer their views on today’s (29 July) results.
Emily Salter, retail analyst at GlobalData
”Though a sobering set of results that illustrate the decimated demand for clothing & footwear due to Covid-19, Next’s Q2 full-price sales growth far exceeded expectations at -28%, compared to a dire scenario of between -50% and -62% stated in April. The retailer now expects FY full-price sales to fall between 18% and 33% in a worst case scenario as the full effects of social distancing and economic uncertainty are felt. This indicates the haemorrhage of sales many other fashion retailers will be experiencing as Next’s wide product offer and robust online platform offers it some protection. Despite negative online sales growth in the period due to the initial warehouse closure and reduced capacity, Next is better positioned than many of its rivals to deal with the long-term impacts of Covid-19.
“The retailer’s 9% growth in online sales in Q2 is testament to the continuous improvements it has made to its online proposition over the last few years. Though other retailers will have experienced higher online sales growth, a significant proportion of Next’s sales already came from the online channel, standing it in good stead to deal with greater demand – for instance it is introducing 24 hour shifts to increase warehouse picking capacity.
“Prior to Covid-19, Next was experiencing a slowdown in the shift to online, but the impacts of Covid-19 have further increased the dominance of the online channel, making the retailer’s innovations to transform stores into destinations and support the online channel ever more important. Like-for-like store sales have not seen a significant improvement since reopening, remaining at around -24% for the last three weeks of the period (versus -32% since re-opening), indicating that many shoppers are still reluctant to visit non-essential stores. Next’s retail park locations significantly outperformed shopping centres and high street branches given their larger size that will make many shoppers feel more comfortable, a protection not offered to many clothing & footwear retailers.”
Aneesha Sherman, analyst, Bernstein Research
“Full price sales growth was far stronger than the dismal scenarios laid out by Next in April, where -50% was the ‘best case’. Online in particular was a big beat on our and consensus expectations, at 9% YoY (vs. -30 to -35% expected). UK retail store sales were predictably weak (-72% year-on-year, versus -78% consensus).
“Online has driven the beat. Since reopening, full price sales have only declined 8% in the six weeks from 15 June, similar to numbers we are seeing from peers (though not exactly comparable due to time period and geographic differences). The struggles with online warehouse capacity are being resolved faster than expected, with picking capacity ramping up to nearly 100%. As Next continues to further increase capacity, the consumer proposition will revert back to normal (midnight cut-off for next day delivery, versus 8pm currently).
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By GlobalData“Online makes up for quite poor UK retail store performance, -32% like-for-like since re-opening, dragged down by city centre and mall locations (with retail parks doing “significantly” better).
“Positive FY profit now expected: GBP195m, a big improvement on the previous “central case” scenario of zero PBT. This central guidance PBT is slightly shy of our current estimate of GBP220m for the year.”
Richard Lim, CEO, Retail Economics
“Sales were dealt a devastating blow during the lockdown but have bounced back at an astonishing rate. Their nimble response to the pandemic highlights the inherent flexibility of their operating model and strength of the business. They have leveraged their online capabilities and strong balance sheet to position themselves effectively to deal with future challenges. After years of investment in their digital operation, they are well-positioned to capitalise on the seismic shift we’re witnessing towards online.
“Sportswear, nightwear and home products were all in high demand as consumers spent more time in their homes and many of us continued to work from home.”
Nigel Frith, senior market analyst, www.asktraders.com
“Next’s superior online offering in addition to consumers’ willingness to spend as stores reopened has helped Next report better than expected full-price sales numbers, cementing its position as the darling of the high street even in challenging times.
“Kidswear, sportswear and home in addition to some adult casual clothing performed much better than expected as consumers spend more time in an informal setting at home. Next is one of the few retailers that have successfully bridged the gap between high street and online and this is proving to be its forte.
“The upbeat results tie in with improving picture in retail that has been coming through in recent weeks after retail sales surged 13.9% in June and as the BRC reported that retailers were discounting less in July.
“Questions remain over the outlook as the government starts to withdraw its support from the jobs market over the coming months, unemployment is expected to rise, and this could well drag on sales going forward. However, these concerns are for a different day. For now, investors are focusing on the upside surprise and Next trades over 9% higher in early trade.”
