Next’s first positive results in over a year are not enough to signal a long-term reliable turnaround for the high street retailer, according to one analyst, as the company warned sales remained “extremely volatile” in its third-quarter trading statement.
Shares in the company dropped 7.88% this morning (1 November), as the apparel retailer said its sales performance has been highly dependent on the seasonality of the weather. Total revenues, including markdown sales, were up 0.8% for the quarter, but were down 1.2% year-to-date.
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Next retail sales, meanwhile, dropped 7.7% in the quarter, while directory sales were up 13.2%.
“We explained in our August trading statement that clearance rates in our summer end-of-season sale were lower than last year,” Next said in its trading update. “In line with our budget and previous guidance, this trend has continued into the third quarter, both in the mid-season Sale and our clearance operation.”
Looking ahead, the apparel retailer said week by week sales volatility makes it “very hard” to determine any underlying sales trend. “We believe the most reliable guide to sales for the balance of the year are the full price sales for the year to date, which are down -0.3%. This number is at the mid-point of the sales guidance we gave in September and so we are maintaining the central profit guidance we issued at that time, albeit we are narrowing the range.”
Total full price sales versus 2016/17 are expected to be in the range of -1.75% to +1.25%, from a previous guidance range of -2.0% to +1.5%. Group profit before tax is expected between GBP692m and GBP742m, from GBP687m and GBP747m previously.
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By GlobalDataSofie Willmott, senior retail analyst at GlobalData, notes although Next’s growth rates appear pleasing, it has still underperformed the UK clothing and footwear market and must ramp up the appeal of its offerings in the run up to Christmas to compete with other retailers already offering stand out, seasonal party pieces.
She adds the retailer’s strict stance on promotional activity could also limit volume growth during Black Friday and the Christmas peak as price sensitive shoppers choose to go elsewhere to take advantage of discounts.
Meanwhile, although the online channel continues to outstrip store performance, the rate of growth continues to slow year-on-year. “Next was once a market leader in the online space but young fast fashion players like Asos and hird party platforms Amazon and Very are innovating at such a pace that Next is struggling to keep up,” Willmott explains. “Launching a delivery saver scheme at the beginning of this year has set Next apart from its mid-market competitors for the time being and will help to drive loyalty, but Next must continue to invest in its online platform to meet rising consumer expectations.”
