Next cuts profit guidance as sales feel the heat

LONDON, United Kingdom - Britain's No.2 clothing retailer Next Plc cut its profit guidance after an unusually warm autumn left its coats, scarves and jumpers stuck on shop shelves, sending an ominous sign to rivals ahead of the Christmas season.

Shares in Next fell as much as 4.4 percent, dragging down rivals Marks & Spencer and Debenhams as the company spelt out the impact on demand of Britain's driest-ever September and mild October.

After a strong summer, third-quarter sales in the 13 weeks to Oct. 25 grew just 5.4 percent on a year before, below a previous 10 percent forecast from the company whose mid-market ranges targeting young professionals and families are a ubiquitous presence in Britain's town centres and out-of-town malls.

It cut fourth-quarter sales expectations from 4 percent growth to 1 percent and said it now expected profit for the full year to be in a range of 750 million pounds to 790 million, still 8 to 14 percent higher than a year ago but lower than previous guidance of 775 to 815 million.

"If we are able to be in the range we’ll deliver earnings per share growth of between 10 and 16 percent, I think even in the worst-case scenario we are not looking at an unacceptable performance," Next Chief Executive Simon Wolfson told Reuters.

Next, Britain's no. 2 clothing retailer by sales after Marks & Spencer, had warned on Sept. 30 that profit forecasts could be reduced if the warm weather persisted.

Its latest comments have particular resonance for the retail sector, since the group has outperformed rivals for a decade due to a strong online offer, new stores and diversification into new product areas such as homewares as well as into new overseas markets.

SECTOR SALES

Wolfson said despite the prospect of a lot more stock to shift over Christmas it would not discount before its popular Boxing Day sale, a tactic that many retailers have employed with varying success.

"We never discount before Christmas, haven't done for 20 years," Wolfson said. "If we need to hit it hard we will do for the first day of the sale, so it becomes a cost issue rather than an ongoing operational issue."

With temperatures in the south of England forecast to hit 20 Celsius this week, less than two months before Christmas, many rivals however could again resort to displaying the sea of red "sale" signs that decorated the country's retail centres last year.

"The sector read-through for clothing suggests a risk of a highly promotional run-in to Christmas," Investec analysts said.

Looking to next year, Wolfson said Next would take a more cautious stance on its first-half outlook after this summer's trade benefited strongly from good weather, however second-half comparatives would now be soft.

Less people spending money on warm clothes now, coupled with low fuel prices and the warm weather keeping home energy bills down meant customers may be ready to splash the cash in future, Wolfson added.

Shares in Next, which began the day up 24 percent on a year ago, were down 1.9 percent to 6,315 pence at 0910 GMT.

The company, which trades from over 500 stores in Britain and Ireland, about 200 overseas and through its Directory internet and catalogue business, also said on Wednesday it did not intend to pay any further special dividends this year but could still make share buybacks.

Analyst Freddie George at brokerage Cantor Fitzgerald kept his "buy" rating on Next. "Our view is that the current slippage is completely due to the mild weather, the underlying trend for consumption remains positive and the comparatives for next year ease."