Next smashes forecasts as Q2 sales surge
Fast-growing fashion retail giant Next said on Wednesday that it had easily beaten its own expectations for full-price sales, with the last 11 weeks seeing an 18.6% surge compared to the same period in 2019.
The result? It’s increasing its profit guidance. It had been expecting that sales would rise by a fairly tame 3% for the year, but with the double-digit Q2 growth, it’s now forecasting full-year pre-tax profit of £750 million, a hike of £30 million.
The Wednesday trading statement was brought forward from one it had been planning for two weeks’ time as a result of the powerful performance.
Other changes to its guidance included a prediction that full-price sales for its full year would now rise by 6%, double that earlier 3% forecast.
Next also said it has decided to repay £29 million of business rates relief to the Government. This sum accounts for the period of time this year that its shops weren't charged business rates but were open. The decision was taken after consulting major shareholders who, between them, account for around 30% of its shares in issue.
Looking in more detail at its performance for the year to date — that is, Q1 and Q2 separately and the half-year (H1) to July 17 as a whole — the company is clearly doing well.
Total full-price sales fell 1.5% in Q1 and are up by that impressive 18.6% in Q2. That means first-half sales have risen 7.8%.
But online is the star performer as stores remain weak. Full-price sales at the firm’s UK and Ireland Retail ops (that is, the stores) fell 7.6% in Q1, 6% in Q2 and 43% in H1. By contrast, Online rose 65% in Q1, 44% in Q2 and 56% in H1.
Within that, Online Next UK full-price sales rose 63% in Q1, 28% in Q2 and 47% in H1. The figures for Online Label UK (its third-party sales) were +71%, 65% and 68%, respectively. And for Online Overseas they were +67%, 61% and 64%.
The company said reasons for the strength include pent-up demand for adult clothing, “with many customers having made few summer purchases during the last 18 months”; the onset of extremely warm weather at the end of May and start of June (although growth “significantly slowed once the very warm weather passed”, suggesting it may have picked up again in the current heatwave); fewer holidays overseas that are likely to have increased domestic spending in the UK; and consumer savings that have materially increased over the last year.
The company doesn’t expect sales to continue at these exceptionally strong levels, but it’s “more optimistic about the outlook than we were three months ago”.
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