Shares in Next Plc surged by more than 9% this morning after the UK-based fashion and homewares retailer significantly increased its full-year guidance – more than doubling full-price sales growth and upping profit guidance by GBP10m (US$12.2) – on the back of a strong second quarter.
The revised forecast came after full-price sales for the 13 weeks to 27 July rose 4% on last year – beating the guidance of a fall of 0.5% given in Next’s May trading statement. However, there are clear divisions within its business, as Next’s retail sales fell 4.2% in the quarter, but its online sales jumped 12%.
The company, which is one of the UK’s largest retailers, said full-price sales during May and June combined were up 3.0%, while those in July jumped 6.8% on last year, helped by lower markdown sales in the end-of-season sale – meaning the sales performance in May/June is a better guide to underlying growth and has been used as the basis for its second-half guidance.
For the 26 weeks to 27 July, total full-price sales were up 4.3% on last year, while product sales, including markdown sales, were up 3.8%. During the first-half, Next’s retail sales fell 3.9% while online sales jumped 11.9%.
Next now says it is increasing its full-price sales guidance for the second half from 1.7% to 3%, in line with its full-price sales growth in May and June.
The increase in full-price sales guidance is expected to add GBP20m to profit, but lower clearance rates to date, along with anticipated lower clearance rates in the second half, are forecast to cost an additional GBP10m. As a result, Next is increasing its guidance for full-year group profit by GBP10m to GBP725m, marginally up on last year. It now expects earnings per share to grow by 5.2%.
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By GlobalDataSofie Willmott, lead retail analyst at GlobalData, notes Next continues to outperform its mid-market competitors thanks to its robust online channel. “We forecast that Next’s online channel will have overtaken stores in H1. However, the shift to online is slowing and notably the biggest change in Next’s FY guidance has come from the store division with retail full-price sales growth adjusted up by 3.4ppts (although still expected to be negative, at -5.1%) versus a minor adjustment of 0.8ppts for online sales growth.”
Willmott adds Next has worked hard to improve the appeal of its stores, introducing coffee shops and concessions to create interest while also driving footfall by offering one hour click & collect and partnering with Amazon by acting as a collection point. Although these initiatives are not enough to reverse the trend of falling footfall, they are going some way to slow the decline and other retailers should take note of Next’s creativity and willingness to trial ideas, she says.
“Next’s distinct focus on family shoppers coupled with its appealing delivery saver scheme Next Unlimited will be helping to boost sales and drive loyalty, with celebrities such as Emma Willis employed to emphasise its desired brand image. The third-party brand portfolio it has been building online supports this image, and Next must continue to build awareness of its extensive branded offer alongside its convenient fulfilment methods to draw in shoppers from rivals including Asos, Very.co.uk and John Lewis, that are stocking similar third-party brands.”
