Next has good news and bad as trading stays volatile
Next had some good news on Wednesday, well sort of. The closely watched UK fashion retail bellwether business may have been struggling to ignite sales growth in recent periods but its online Directory arm appears to be in good health.
However, as always, its Retail operations - its large store estate - were a drag on its figures and it’s clearly not back on a safe growth curve just yet.
So what did its latest trading update tell us? Its full-price sales in Q3 to October 29 rose, but only by 1.3% and 1.2% of that was accounted for by new space. However, the latest quarter has certainly been an improvement on the rest of the year as in the first nine months, full-price sales rose just 0.3% on the back of a 1.4% sales space expansion.
The improvement in the latest period appears to be all about online. How so? Well, its Retail division saw full-price sales down 7.7% in both the quarter and the year-to-date. The Directory, by contrast, saw sales rising 9.4% in the year but a much healthier 13.2% in the quarter.
That’s full-price sales dealt with. What about when markdowns were add in to the mix? Well, the news wasn’t quite so good. The company had explained in its August Trading Statement that clearance rates in its summer end-of-season sale were lower than last year. This trend continued into Q3, both in the midseason sale and its clearance operation. As a result total sales, including markdowns, were up 0.8% for the quarter but fell 1.2% for the year so far.
Looking at the charts Next provided with its trading statement, a clear sales improvement is visible from Q1 to Q2 and into the latest period. But digging deeper into the more buoyant Q3, there’s also a worrying dip during October. This reflects reports from the company’s retail peers that have shown UK retail sales definitely depressed for much of last month and fashion sales in particular slumbering after an improvement in September.
Next said that its “sales performance has remained extremely volatile and is highly dependent on the seasonality of the weather.” This meant that in August and September sales were “significantly” up on last year, “as cooler temperatures improved sales of warmer weight stock.”
But October’s mild weather dealt a heavy blow. It seems that Next, like so many others in Britain (but unlike a few of its more nimble, younger, rivals) is unable to break free of the of overall market sentiment and drive sales growth whatever the weather.
The company is very aware of the issues it faces and also how difficult they make it to accurately forecast its performance over the next few months.
It said Wednesday that “week by week sales volatility makes it very hard to determine any underlying sales trend. We believe the most reliable guide to sales for the balance of the year are the full price sales for the year to date, which are down -0.3%. This number is at the mid-point of the sales guidance we gave in September and so we are maintaining the central profit guidance we issued at that time, albeit we are narrowing the range."
So it now expects sales for the full year to come in anywhere between 1.75% down to 1.25% up. That compares to the previous forecast of 2% down to 1.5% up. Pre-tax profit meanwhile should be anywhere between 12.4% down to 6.1% down. It had earlier predicted a range of 13.1% down to 5.5% down.
None of that sounds like particularly good news and the company is staying cautious with good reason, admitting that some might think it’s looking too much on the bleak side. The trading statement said: “The guidance implies that our fourth quarter will be down 0.3% and this may seem pessimistic compared with our performance in the third quarter (up 1.3%), particularly as we believe that our product ranges have continued to improve.
“However, as we highlighted in September, the third quarter last year was very weak, down 3.5% on 2015, whereas the Christmas trading period was only down 0.4%. So the comparative numbers are much more demanding in the last quarter.”
It all means that anyone looking for clues as to how Next will fare in the quarters ahead might still be scratching their heads. The company is obviously going to be battered or boosted by whatever way the consumer goes in the months to come even with product improvements. Tune in on January 3 when it delivers its full-year and Christmas trading update. We’re sure it will make interesting reading.
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