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March 24, 2022

Next online offer boosts FY numbers but bumpy ride ahead

An established online business and diverse product offer have paid off for Next Plc with the retailer reporting a jump in full-year profits and sales – but the group is exercising caution in its 2022 outlook.

By Hannah Abdulla

Announcing Next Plc’s preliminary results for the year ending January, CEO Simon Wolfson acknowledges the group has been “fortunate” as it was able to navigate its way through the pandemic and structural changes affecting the sector to deliver record sales and earnings per share.

A strong online offering allowed the business to make up for much of the sales lost due to retail closures.

Next FY results

  • Total group sales increased 11.5% to GBP4.86bn (US$6.41bn) in January on a two year comparative, and by 34.1% on a one-year basis.
  • Profit before tax of GBP823m was up 10% versus 2019/20 (and 140% against 2020/21).

Of the 2021/22 year, Next says during the first quarter it made up for much of the lost retail sales through online sales. In the second half, despite stock shortages, it was able to scale up online operations to meet pent-up demand for adult clothing.

Next attributes this in part to pent-up demand and consumer savings accumulated during lockdown.

Cautious outlook

Looking ahead, Next has lowered its sales guidance for 2022/23 by GBP85m (2%) and its profit guidance by GBP10m (1.2%) to take into account the impact of the Ukraine-Russia war which has seen the retailer close its websites in those locations.

“Our central scenario for the year ahead is that full-price sales will increase by 5% and that group profits will increase by 3.3% to GBP850m,” Next says.

“The buoyancy of our sales last year, along with the benign economic environment that accompanied it, make comparatives in the year ahead challenging. Last year’s strength contrasts with this year’s unusually high level of geopolitical and economic uncertainty. The combination of these factors make accurate guidance particularly difficult,” the retailer adds in its statement.

Specifically, Next says the cautious approach comes on the back of five big uncertainties:

  • The unwinding of pandemic savings
  • A return to spending on travel and leisure
  • Inflation in competing essential goods
  • Inflation in Next’s selling prices
  • Likely increases in UK taxes and mortgage rates.

Commenting on the numbers, Emily Salter, retail analyst at GlobalData, notes the sales are impressive as Next continues to prove the strength of its online platform and the agility of the business.

“The disparity in the performance of Next’s online platform and stores is stark though, with two-year comparatives at 44.6% higher and 22.7% lower respectively. Next has simply created a more compelling and relevant proposition online with its broad range of products and brands, and though it continues to innovate in its stores, such as by adding a GAP concession to its flagship Oxford Street store, online will continue to far outperform in FY2022/23.”

She also adds Next is well-positioned to handle the economic turbulence over 2022.

“The outlook for inflation is worse than in January when it gave its original guidance. Inflation has increased further, not least because of the impacts of the Russian invasion of Ukraine, and yesterday’s (23 March) UK government budget announcement will do little to ease the squeeze on consumers’ discretionary incomes. However, Next’s mass-market positioning and presence of more essential products, especially childrenswear, alongside its strong credit offer, should help the retailer weather yet another storm.

Next aims to be the first choice for fashion, homewares and beauty shoppers in the UK and Ireland, while acknowledging the highly competitive nature of online marketplace retailing. The retailer has identified areas of expansion to help it reach this goal, proving its willingness to constantly innovate to thrive in the retail market.

“These include exploring licensing opportunities in new areas such as children’s sportswear and premium homeware; experimenting with new wholly-owned brands to exploit gaps in the market, including WOAH which sells vegan skincare, and Friends Like These which offers affordable trend-led womenswear; and franchising overseas brands, including Victoria’s Secret and Gap, and it will expand this to Bath & Body Works. Initiatives like these prove that Next is never happy to rest on its laurels and will help boost its future growth.”

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