Next Share News (NXT)

(Sharecast News) - Next reported a small drop in sales over Christmas but its performance was better than the retailer had expected and the company said online sales made up for almost all those lost in retail stores.
In the nine weeks to 26 December, full price sales declined 1.1% on last year, coming in ahead of the retailer's central guidance for an 8% drop in its October trading update.

Online sales during the period rose 38%, with UK online sales up 36%, while retail sales slumped 43%.

Unsurprisingly, products that did well included childrenswear, home, loungewear and sportswear, while clothing for work, parties, events and going out did badly.

However, Next said the profit made from its overperformance in November and December has been almost entirely offset by the anticipated loss of full-price retail sales in January due to lockdown closures and additional costs it has incurred clearing more of its retail end-of-season sale stock online.

Assuming that 50% of the company's lost retail sales in January are recouped online, full-price sales this month are expected to be down 14%. Total full price sales for the full year are expected to be 16% lower.

The retailer now expects to report pre-tax profits of £370m for the year to the end of January, up from a previous forecast of £365m. Next's central scenario is for pre-tax profit of £670m for the year to January 2022. This is ahead of current consensus and assumes first-half sales fall 3% and second-half sales rise 3%.

"The continued uncertainty caused by the Covid pandemic, and its potential economic impact, mean that it is harder than ever to predict sales and profits for the year ahead," Next said. "So the guidance ranges we are giving for the coming year are wider than usual, but at least give shareholders an understanding of how the profits of the business would respond to different levels of sales growth.

"In addition to the closure of shops, the pandemic has adversely affected the flow of container traffic from the Far East. At present many of our deliveries are running two to three weeks late and we expect this level of disruption to continue into the new year. Our stock levels are currently down 10% versus two years ago (January 2019). We expect stock levels to steadily improve and return to more normal levels by the end of March."

At 0855 GMT, the shares were up 7.7% at 7,444p.

Russ Mould, investment director at AJ Bell, said: "The announcement of new, stringent lockdowns in England and Scotland may provide a gloomy backdrop to its results announcement but Next's fourth profit upgrade for its current fiscal year goes a long way to explaining why the retailer's shares are higher than where they were a year ago, despite everything that has happened in the meantime.

"Granted, the upgrade is relatively minor this time, at just £5m to £370m but the forecast of a £670m profit for the financial year to January 2022 is 5% higher than the current analysts' consensus forecast for good measure."

Steve Clayton, fund manager of the Hargreaves Lansdown Select UK Equity funds which have positions in Next, said: "Next looks like an upside-down swan right now. Normally swans glide serenely along the surface, feet paddling furiously, hidden beneath. The pandemic has flipped the swan upside-down and it is those feet we are looking at. Their frantic activity disguises how effectively Next have managed the pandemic so far.

"Business in the stores has been pretty awful, with lockdowns impacting their ability to trade, a problem Next see lasting through March. But Next's online business has stepped up, growing by 38% in the nine weeks to Boxing Day. Indeed Next is now predominantly an online retailer, having made big strides early on to embrace the internet, strides that have left it far better placed than most of its High Street rivals can dream of.

"We like Next both for its online strength, but also its focus on cash flow, which is set to see debts fall by over £400m in the current year. With so many rivals in disarray, we see Next as well positioned to take advantage."