Next ups FY profit outlook by GBP65m on Q3 sales beat - Just Style
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Next ups FY profit outlook by GBP65m on Q3 sales beat

By Beth Wright 28 Oct 2020

UK clothing and homeware retailer Next Plc has raised its full-year profit guidance after posting better than expected full-price sales for the third quarter. 

Next ups FY profit outlook by GBP65m on Q3 sales beat

UK clothing and homeware retailer Next Plc has raised its full-year profit guidance after posting better than expected full-price sales for the third quarter. 

In a trading statement this morning (28 October), the retailer said for the three months ended 24 October, full-price sales were better than anticipated and were up 2.8% against last year. Total sales, including markdown sales, were up 1.4%.

The sales performance by product category remains very similar to the second quarter, with home and childrenswear over-performing while demand for men’s and women’s formal and occasion clothing remains weak.

Retail sales, however, were down by 17.9%, with Next noting out of town retail parks continue to perform better than high streets and shopping centres.

Online sales, meanwhile, remain strong, both in the UK and overseas, with sales up 23.1% in the period.

Looking to the final quarter, Next has modelled three new scenarios based on potential Government and consumer reaction to the progress of the Covid-19 pandemic.

Its central scenario is based on further local lockdowns and assumes full-price sales will come in at -8%. Should there be no further local lockdowns, the retailer expects full-price sales to be flat. Two weeks of store closures in England, Scotland, and Northern Ireland would see full-price sales come in at -20%.

“The biggest single unknown is whether England, Scotland and Northern Ireland will follow Wales’ decision to shut non-essential retail shops,” the retailer said. “A two-week lockdown in England, Scotland and Northern Ireland in November would reduce retail full-price sales by around GBP57m (depending on timing), representing 17% of retail full-price sales and 6% of the group’s full-price sales in the quarter.”

At its central scenario, Next is estimating full-year profit before tax will be GBP365m (US$473.4m), GBP65m higher than the central scenario given in September.

“This year is a 53-week year and we anticipate that the extra week will add around GBP12m to profit,” it added.

Expectations beat

Richard Lim, CEO of Retail Economics notes Next’s latest results are “impressive” given the hugely challenging backdrop.

“While the apparel sales continue to suffer, the retailer is leaning on growth across home products and utilising its sophisticated multichannel operations. Next remains ahead of the curve when it comes to weathering the storm. Its strong online proposition, the spread of physical shopping destinations and strategic partnerships give customers more options to buy in the way they feel most comfortable. This will prove critical during Christmas trading as Government restrictions play havoc with the natural flow of festive spending.” 

Emily Stella, lead analyst at data and analytics company GlobalData, adds consumer demand is currently anything but constant, and Next’s weekly sales over this quarter reflect that.

“The retailer’s revenue spiked in August as consumers experienced renewed confidence and headed to stores with vigour after lockdown, but sales tapered off over September, only to rise again through October. Given this, Next is cautiously optimistic in the circumstances and has raised its profit guidance for the year since September.

“Online sales remain strong, comfortably outstripping the decline in physical. Of its stores, out-of-town retail continues to perform better than the high street and shopping centres. Home and childrenswear remain the high performers for the business, with formal and occasion clothing struggling.

“In its central forecast scenario for Q4, Next assumes further local lockdowns; increased consumer reticence as stores get busier in the run-up to Christmas; and rising staff self-isolation as infection levels stay high, causing constraints on capacity. The result of this is an expected 8% decline in full-price sales for the golden quarter, a far cry from Next’s Q4 results last year.”

Shore Capital analyst Greg Lawless, meanwhile, says Next remains a well-managed company with tight cost control, good stock management and good cash generation.

“Yet again, the company has surprised on the upside and we have now had two upgrades in recent months. We provisionally upgrade our forecast to GBP400m for FY2021, at the top end of Next’s own expectations highlighting it has enough stock for Q4 and that UK consumers with more disposable income continue to spend. We also highlight the high quality of the credit book which reflects that UK consumers are not yet experiencing difficulty with credit repayments. The company’s central scenario is to achieve earnings of GBP365m for FY2021. We take the top end scenario of GBP400m.

Next plans to issue an update on sales to 26 December on 5 January 2021.