Leicester-headquartered Next beat its expectations for the third time in its results for the six months to July.
According to lead retail analyst at GlobalData, Emily Salter, Next had initially expected its full-price sales to decline by 3.0% and instead, they grew by 3.2%, as the group was helped by sunny weather in May and June “when sales rose by 7.5% and 10.0%.”
Equity research retail analyst at Shore Capital, Eleonora Dani attributed the rise in sales to a “robust online performance” which Next calls an “uncomfortable transition of sales from retail to online.”
Online sales grew by 4.1%, whilst retail sales show a “more modest” growth of 0.9%. Salter explains that Next has continued to make improvements to its already strong online presence including the addition of a new warehouse, Elmsall 3, that aided Next in fewer items being fulfilled from store stock and fewer items being delivered later than promised, boosting consumer satisfaction.
Next key H1 results:
- Net sales grew 5.4% to £2.6bn.
- Operating profit jumped 5.1% to £456.4m compared to £434.4m.
- Net profit increased 4.8% to £420m.
GlobalData predicts the total clothing & footwear market will grow 2.7% in 2023 “but Next’s sales are likely being pulled down by its home range, a market that is struggling in 2023,” adds Salter as consumers shift from big ticket items as a result of a pressured economy.
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Next hints at inflationary pressures easing in the future: “In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line.”
Next detailed in the report that it is expected to make an “exceptional gain of £110m” from the Reiss acquisition where it took a further 34% stake in the luxury fashion brand in September. The brand forecasts its Earnings Per Share (EPS) before tax to be 723.9p, up 3.2%.
Salter notes that an area Next has labelled as a growth opportunity is its Total Platform which leverages its infrastructure by offering a complete suite of online services to third-party brands, providing services such as websites, marketing, warehousing, distribution networks and contact centres.
Salter said: “At the start of September, it increased its stake from 51% to 72% in Total Platform client Reiss, which seems to have flourished with its website operating through this platform – Reiss is more able to draw on Next’s retail prowess, and Next is reaping greater benefits from Reiss’ strongly growing position within the market.”
Outlook for 2024/25
The UK brand said it has begun the process of planning for the next financial year and as inflationary headwinds set to ease it appears that:
- Cost-of-goods price inflation is easing, and input prices look likely to stabilise next year.
- It anticipates that operating cost inflation will be less aggressive next year, with some of this year’s headwinds reversing. For example, the cost of electricity is set to fall by £12m and Elmsall 3 is likely to deliver net cost savings as its new automation ramps up.
- In addition, Next expects to make significant cost savings in Joules from the rollout of its Total Enterprise Platform