Shares in Next Plc soared this morning (25 September) as the apparel retailer upped its full-year pre-tax profit guidance by GBP10m (US$13.1m) on the back of a better than expected first-half.
In its results statement, the company said its “over-performance” in the first half was flattered by the unusually warm summer but warned the UK retail market remains volatile.
Full price sales for the six month period were up 4.5% on last year, ahead of the +1% guidance given in January and the +2.2% given in May.
As a result, it is now raising its central guidance for full-year profit before tax by GBP10m to GBP727m. This is broadly in-line with last year’s profit of GBP726.1m and would deliver a growth in earnings per share of +5%.
Shares were up by almost 8% as the news broke this morning.
Total group sales for the period, meanwhile, were up 3.8% on last year to GBP1.99bn, while online sales surged 16.8% to GBP892.3m. Sales at retail stores, however, fell 6.9% to GBP925.1m.
Profit before tax edged up 0.5% to GBP311.1m while operating profit increased 1.6% year-on-year to GBP330.5m. Net profit, meanwhile, edged up 0.8% to GBP254.2m.
“When we issued our August trading statement we believed that there was a high risk that the sales gained in July would be offset by losses in August. As it turned out, we did not experience any material loss of sales in August or early September,” said Next chief executive Lord Wolfson.
He warned, however, the UK retail market “remains volatile, subject to powerful structural and cyclical changes,” adding that many of these headwinds have not abated.
“As expected, sales in our stores (which now account for just under half of our turnover) continue to be challenging.”
Next’s growth should not be attributed to a general upturn in consumer spending
Sofie Willmott, senior retail analyst at GlobalData, notes the positive figures announced by Next are likely to be perceived as a sign that the UK retail environment is recovering, However, she says the retailer has made wise operational decisions that have aided growth and enabled it to capitalise on changing shopping habits.
“Next’s robust performance should not be attributed to a general upturn in consumer spending and, as such, other retailers that are not making strides in improving their customer proposition, are unlikely to see the same results,” she warns.
“Next is better protected as sales continue to transition online, given the dominance of its digital channels, and is well prepared with a more agile retail estate comprising of shorter leases and profitable stores. Stores remain a declining part of the business but Next is utilising physical locations to its advantage, for example by adding in concessions to drive revenue and give shoppers other reasons to visit Next, and also as a back-up stock pool for online orders. In addition Next is considering using stores as collection points for ‘third-party non-competing businesses’ demonstrating a willingness to extend its purpose, in order to provide convenience for shoppers and adapt to changing consumer needs.”
In addition, although Next’s online sales have been boosted by its growing branded offer and international markets, Willmott says the retailer has delivered impressive growth through its own-brand range with full price sales up 11.5%.
“Considering the widespread availability of many brands as retailers such as River Island, Accessorize and Finery seek new online revenue streams, Next’s own-brand performance is reassuring and will provide a strong foundation as growth from third-party brands inevitably subsides,” she adds.