Next sees festive sales rise, but cuts profit forecast
Fashion chain Next has cut its annual profit forecast and predicted falling earnings over the year ahead despite revealing a solid Christmas performance.
The group, which has invested heavily in improving its stores in the West Midlands, said full-price sales rose 1.5 per cent between October 28 and December 29, in line with expectations.
It saw high street store sales slump 9.2 per cent over the Christmas trading period, though this was offset by a 15.2 per cent surge online.
But it downgraded its profit forecast to £723 million for the year to January, from the £727 million previously expected, and said the next financial year will remain under pressure.
It blamed the gloomier profit outlook for the current year on higher sales of seasonal products, such as personalised gifts and beauty products, which have a lower profit margin than its clothing ranges.
The group, which has more than 500 stories in the UK and Ireland, also said it faced higher operational costs on online sales.
In November Next, which launched in 1982, opened a new 17,700 store at St John's Retail Park in Wolverhampton and in August unveiled its 75,680 sq ft store – its largest in the Midlands – in the former Sainsbury's at intu Merry Hill in Brierley Hill.
It has extended its chain across the region with stores in most major shopping centres including in Telford town centre and Pride Hill Shopping Centre, Shrewsbury.
For the year to January 2020, Next predicted profits will fall one per cent to £715 million while full-price sales growth will ease back to 1.7 per cent from the 3.2 per cent expected for 2018-19.
The group said: "In the year ahead, we are assuming a similar economic environment as that experienced in the second half of the current year.
"Within this guidance, we expect retail sales to be down 8.5 per cent and online sales to be up 11 per cent."
But it said this came with a "high degree of uncertainty" and does not factor in the "potential benefits of a smooth transition or the downsides of a disorderly Brexit".
Chief executive Lord Simon Wolfson said November was hit hard by unusually mild weather, but that spending bounced back in December.
A prominent supporter of Brexit, Lord Wolfson said the fears over the impact of current economic uncertainty on consumers were overdone.
"People are maybe a little bit more cautious, given the uncertainties around Brexit.
"But I think that's as strong as you can put it," he explained.
Next is the first of the major retailers to report back with festive figures, with the sector's performance watched closely for signs of a Brexit impact on consumer sentiment.
There have been fears of a difficult season for retailers after Asos issued a pre-Christmas profit warning following a dire November, while music chain HMV became the first high street casualty last week when it appointed KPMG to carry out an administration.
But experts at Shore Capital said Next's performance was impressive.
Analyst Greg Lawless said: "Given the macro economic environment and difficult clothing market through the autumn, management should be applauded for such a credible trading update."