UK retail chain Next has kicked off the post-Christmas reporting season with an upbeat statement, announcing higher than expected sales and an improvement in its full-year profit forecast.
Sales rose 5.2 per cent in the fourth quarter to December 28, taking the full-year rise to 3.9 per cent. Next said this was ahead of its internal forecasts and meant that pre-tax profit for the year would be about £727m, against a previous estimate of £725m.
For the year to January 2021, the company said it expected full-price sales to rise 3 per cent overall, and that profits would grow 1 per cent to £734m.
Simon Wolfson, chief executive, said that this reflected the improving economics of the group. “The level of sales growth we are forecasting for the year ahead is similar to what we forecast at this point last year. The difference is that this year, we are expecting growth in profits rather than a decline.”
The company’s shares initially rose about 1 per cent on Friday, but by mid-morning were trading slightly lower. Over the past year they have risen by three-quarters, making them the fifth-best performer in the FTSE 350 general retail index.
RBC Capital Markets analyst Richard Chamberlain said the projected profit increase was less than the 2 per cent growth he had forecast, while Tony Shiret at Whitman Howard said that Next’s momentum was increasingly dependent on maintaining growth rates in its online business.
Sales in the group’s 517 stores fell 3.9 per cent in the fourth quarter, but that was more than offset by a 15 per cent rise in online sales. In the equivalent period last year, full-price sales increased 1.5 per cent, with a 6 per cent drop in store sales offset by a 13.6 per cent increase in online ones.
Some commentators had forecast that the timing of Black Friday — which fell a week later this year — and the December general election would hit sales in the run-up to Christmas. But Lord Wolfson said that this year the company had put “significantly less” merchandise into its already limited Black Friday sale, and that there was “absolutely no evidence” that the election had affected trading.
He added that the slower-than-expected post-Christmas sale was most likely down to rainy weather on Boxing Day.
Shares in other retailers such as Marks and Spencer, Primark owner Associated British Foods and Asos were flat on Friday. But analysts warned against extrapolating Next’s performance across the wider sector.
Richard Hyman, an independent commentator, said the Next figures were excellent given the market background. “But far from being an industry bellwether, Next is almost always a significant outperformer,” he added.
Richard Lim, chief executive of Retail Economics, said the company’s online business set it apart from rivals. “There’s no doubt that more Christmas shopping was done online this year than ever before and they have positioned themselves to capitalise,” he said.
Next reaffirmed its commitment to return surplus cash to shareholders, saying it would return about £145m in the coming year. As a result, earnings per share will again grow faster than pre-tax profit.
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January 03, 2020 at 02:33PM
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Next upgrades profit forecast after upbeat Christmas - Financial Times
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