Next disappointed as Christmas sales drop, prepares for tough year

Did Next manage to pull off a dramatic sales coup over the Christmas trading period? No. The company said Wednesday that its full-price sales in November and December (to Christmas Eve) dropped 0.4%, even though the performance in Q4 so far was better than Q3 and “better than the run rate for the full year.”


Q4 has been tough for Next and January looks slow too

But the company had expected Christmas period sales to rise, especially given the weak figures for the 2015 comparable period. So that 0.4% dip was clearly a huge disappointment, even if it was an improvement on the 1.1% drop in full-price sales for the year as a whole.

It is obviously tough out there. And the tough conditions in recent months meant that the retailer could not rely on its usually-buoyant online Next Directory division to take up the slack, although Directory sales were at least in positive territory.

Full-price sales at Next Directory in the holiday season rose 5.1%, compared to a 3.6% rise for the year-to-date. But at The Retail division, Q4 so far was down 3.5%, only slightly better than the year-to-date drop of 4.3%.

What does that mean for profits? Well, its performance in the current clearance sale will also have a big effect on these. The retailer said that despite a difficult season, stock for its end-of-season sale was “well controlled and down 3% on last year.” But that was the best news as sales in its clearance event are down 7% so far and the cost of that lower clearance rates is around £3m.  

It looks like the next few weeks are crucial. “Our revised central guidance for full-year group profit is £792m, this may increase or decrease by £7m depending on trade in January,” Next said.

Without a crystal ball to see into the near future, the company is currently predicting pre-tax profit to be down 3.6% on the year and earnings per share down 0.6%. It had previously given guidance of full-year profit ranging from £785m to £825m, so at least the new guidance has not fallen below the lower end of that range.

Next also said that “the year ahead looks set to be another challenging year; therefore we are preparing the company for tougher times and have set our full-price sales budget accordingly.”

The fact that sales continued to decline in Q4 beyond the anniversary of the start of the slowdown in November 2015, means that “we expect the cyclical slowdown in spending on clothing and footwear to continue into next year,” it added.

Next also said that a further squeeze in general spending as inflation begins to erode real earnings growth and a like-for-like price rise of up to 5% will also hurt sales. But it expects that this will only depress revenue by around 0.5%.

That means it is budgeting for Next brand full-price sales growth (at constant currency) in the year to January 2018 to be anywhere between a 4.5% drop and a 1.5% rise. However, overseas sales will be boosted by the devaluation of the pound, which means that it expects total reported full-price sales to be around 1% better than that range.

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