The Company offers a discount voucher to holders of 500 or more Next Plc ordinary shares as at 1 April each year. The voucher entitles holders to a 25% discount against most purchases at any one time of full price merchandise in Next Retail stores. The voucher has no monetary purchase limit and expires on 31 October of the same year.
Outlook for Sales Our plan for the year ahead is similar to the approach taken last year. We anticipate that underlying retail sales will remain negative but that we can continue to move the top line forward (albeit modestly) through the addition of profitable new space and the continued development of the NEXT Directory.
It is too early to give a full year forecast but our budget for the first half is for Brand sales to be up between 1% and 4%, with Retail sales between 0% and -3% and Directory between +9% and +12%. It is worth noting that the growth in the first quarter's sales is likely to be lower than the second, as last year's first quarter was boosted by an exceptionally warm Easter and the Royal Wedding. Last year growth in the first quarter was 5.2% but in the second only 1.3%.
Outlook Margins and Costs We anticipate that bought-in gross margin for the full year (the difference between the cost of the stock and its retail selling price before markdown) will be level with last year, with manufacturing costs and selling prices both remaining in line with last year. Stocks are being managed tightly and if sales are within our budgeted range we do not anticipate any significant change to markdown and obsolescence costs.
We estimate that annual inflation in our existing cost base (i.e. excluding the costs of new space) will be around £36m, driven mainly by wage inflation of 2.5% and underlying increases in rent and rates. However we believe that we can offset at least £28m of this increase with cost saving initiatives.
Outlook for Cash and Buybacks We anticipate that the Company will generate £200m of surplus cash after allowing for capital investment, tax and dividends. We intend to use up to this amount to buy back shares and at a price of £28.00 that sum would buy around 4% of the shares in issue.
OUTLOOK The outlook for the year ahead is very uncertain, and in this environment we think it is sensible to again be cautious in our budgeting.
Outlook for the consumer There is some important good news for the consumer. As expected, inflation has begun to fall and looks set to ease further. So by the third quarter consumers should see their incomes rising broadly in line with prices - a welcome end to deflation in real earnings. Inflation in our own prices has also evaporated and selling prices going forward will be in line with those last year.
However, in 2012 there remain two important constraints to growth in consumer spending:
• Employment took a turn for the worse in the middle of last year and currently the creation of jobs in the private sector is only barely keeping pace with the reductions in public sector employment. So it looks as though there is little chance of increased employment improving the consumer economy. • Credit availability remains very tight for business and consumers alike. The recent increases in mortgage rates, announced by several UK lenders, is indicative of a world where credit conditions are unlikely to ease.
In addition any worsening in the Eurozone sovereign debt crisiswould further undermine UK employment and put additional pressure on banks' balance sheets. So this possibility remains a significant downside risk to the UK consumer.
On balance we believe that these on-going constraints outweigh much of the upside potential for 2012 and accordingly we are budgeting conservatively.
Fashion retail chain Next said the year to the end of January finished well after 2011 had presented the retail sector with 'the perfect economic storm'. Revenue rose to £3,506m from £3,454m the year before, ahead of market expectations of sales of £3.4bn. This was despite the core Retail chain - the High Street shops - seeing revenue ease 1.4% to £2,191m from £2,222m. The online and postal business, Next Directory, more than picked up the slack, growing sales by 16.4% to £1,089m from £936m the year before. The International division also had a good year, growing the top line by 13.4% to £76.3m from £67.3m the previous year.
Datafeed and UK data supplied by NETbuilder and Interactive Data.
While London South East do their best to maintain the high quality of the information displayed on this site,
we cannot be held responsible for any loss due to incorrect information found here. All information is provided free of charge, 'as-is', and you use it at your own risk!
The contents of all 'Chat' messages should not be construed as advice and represent the opinions of the authors, not those of London South East Limited, or its affiliates.
London South East does not authorise or approve this content, and reserves the right to remove items at its discretion.