Next shines at Christmas as sales beat expectations

Next on Thursday reported full-price sales up as much as 20% in the eight weeks to Christmas Day, compared to 2019. That was good news for the fashion and home retail giant that managed to sell products adding up to £70 million more than it had expected.

As a result, it increased its full-year pre-tax profit guidance by an extra £22 million to £822 million. That’s up almost 10% versus two years ago. Full-price sales for the year should be up 11% at £4.3 billion.

Looking back at the eight-week pre-Christmas period, that 20% full-price sales increase must have been pleasing given that the rise for the year as a whole was ‘only’ 13%. And the strength in the recent period is also clear from the fact that full-price product sales rose 21% for the eight weeks on a two-year comparison, against 15% for the year as a whole.

The product sales rise divided down during the Christmas period into a 31% surge at Next UK’s online ops, an 85% leap at the third-party brand Next Label UK business, and a 36% rise in online overseas sales. UK and Ireland retail store sales fell 5.4% (compared to a 24% drop for the year to date).

The company said it had been expecting sales growth in Q4 to be weaker than Q3, however “a strong revival in Next branded adult formal and occasionwear significantly improved sales throughout the final period”. That’s encouraging given fears that formal and occasion dressing would have been dented by the rise of the Omicron variant.

It’s also encouraging given that the retailer’s stock levels were materially lower than planned in the weeks leading up to Christmas. It had “experienced some degradation in delivery service levels as a result of labour shortfalls in warehousing and distribution networks”. But it said “the fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period”.

Next added that for the end-of-season sale, surplus stock was much lower than expected (down 18% versus two years ago). But clearance rates, so far, have been “in line with expectations”.

As far as sales are concerned for the next full year (the 12 months ending January 2023), it’s predicting a rise of 7% compared to the current year, with pre-tax profit up 4.6% at £860 million.

Yet the company added that “forecasting sales for the year ahead is unusually difficult and the buoyancy of recent months makes it all the harder. We are assuming no further disruption from Covid. But there are areas of uncertainty in the wider economic environment that we need to bear in mind”.

The issues include questions around the extent to which the buoyancy of the last nine months has been the result of pent-up demand combined with shoppers spending savings accumulated over the pandemic and how a more ‘normal’ year will pan out.

There’s also no clue yet as to what extent the return to spending on overseas holidays and other social activities might depress demand for discretionary goods.

Inflation could also be an issue both in terms of higher prices for essentials denting sales of non-essentials, and how higher prices might dent demand for Next’s own products. The retailer is expecting to hike prices by around 6%.

And Next also said that higher National Insurance rates might hurt spending on fashion and home items as consumers have less discretionary cash.

Next shines at Christmas as sales beat expectations

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