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TOP NEWS: Next Fares Worse Than Planned As Sales Sink By More Than 40%

Wed, 29th Apr 2020 08:29

(Alliance News) - Next PLC on Wednesday pushed its full-year forecasts lower, after reporting its first quarter sales slumped at a faster pace than the retailer had anticipated in its March stress tests.

Full price sales in the first quarter ended April 25 plunged 41%, including a 52% fall in bricks and mortar stores - which have been closed since late March by the Covid-19 lockdown in the UK, as well as a 32% slump in online.

Its online offering only began operating again on April 14, after also being closed late in March amid the coronavirus health crisis.

Including interest income, full price sales were down 38%.

"The retail sector, along with the wider economy, has slowed faster and more steeply than we expected in March," Next explained.

The FTSE 100 retailer added that most customers actually made up their mind about shunning stores before the government-imposed closures.

"We believe that the threat of a pandemic did not significantly affect retail sales until the beginning of March. We saw a material impact in the second week of March and declines accelerated as each day went by. In the three days before stores closed on Monday, March 23, retail sales were down 86%. In reality, the majority of our customers had decided to stop shopping in retail stores before the order came to close them," Next said.

"We believe that the effects of the coronavirus will be felt for longer than we first anticipated. The economic consequences and continued social distancing will mean that both retail sales and online sales will be disrupted even after full lockdown measures have been lifted."

The latest warning comes after Next reported in March that it conducted a detailed "stress test" on the effect of the virus outbreak. Its worst case scenario at that point forecast annual sales to decline by 25%.

That figure now actually makes for better reading than the best case scenario under its revised forecasts, which the retailer unveiled on Wednesday.

At best, Next's annual full-price sales will fall 30%, including a 50% annual fall in the second quarter, before easing to a 19% decline in the third quarter and 17% in the fourth quarter.

Under its worst case, total full-price sales for the year will plunge 40%. In this scenario, Next's second-quarter sales will be down 62%. They will fall by a third in the following quarter and will be down 28% in quarter four.

Next does however sees additional cost savings.

"We have reviewed all our operating costs and now anticipate operational costs savings of GBP120 million," the company explained.

The cost cuts will come "across the board" including GBP40 million in savings from marketing, catalogues and photography. Next sees GBP35 million in cost cuts in online distribution and GBP18 million in store occupancy costs.

"We are paying our contractual rent in full and on time but can make significant savings in repairs and cosmetic maintenance costs. We also expect significant savings in service charges from shopping centres and retail parks where we are closed," Next added.

Making no share buybacks or dividend payments - of which it warned in March - will save Next GBP480 million.

It also estimates that wages will be GBP130 million lower than forecast and business rate holidays and the absence of corporation tax liabilities will pocket the retailer an extra GBP250 million in savings combined.

Next noted it has had its banking covenant waived until January 2021 and it was approved earlier this month to draw down funds under the Bank of England's Covid Corporate Financing Facility.

Next summarised: "It is hard to think of a time when the outlook for sales and profit has been more difficult to predict. A pandemic of this scale has simply not been experienced by a modern global economy. No amount of information about the past can accurately guide us in our deliberations on the future.

"The scenarios we set out are just that, scenarios, not guidance, not a forecast. Their purpose is to demonstrate how the business is likely to perform under different levels of stress, without seeking to predict which outcome is most likely. Much has changed since we last reported in March, it seems likely that much will change again in the next three months."

The company is penned to release a first-half trading update on July 29.

Shares in the company were 1.2% lower at 4,727.00 pence each in London on Wednesday morning. They are down 32% so far in 2020.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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