Next lifts FY profit guidance on strong third quarter sales rise

(Sharecast News) - Clothing retailer Next lifted full-year profit guidance after a better-than-expected rise in third quarter sales as online sales during the coronavirus pandemic drove growth.
The company on Wednesday forecast a pre-tax profit of £365m, up £65m from a central scenario given in September.

Full price sales in the three months to October 24 rose 2.8% against last year. Total sales, including markdowns, were up 1.4%. Year end net debt was forecast to reduce by £487m to £625m. Online sales were strong in the quarter, the company said, rising 23.1% to offset a 17.9% drop in retail.

Markdown sales were down 12.3% against last year driven by lower footfall in stores and capacity constraints in our Next's online warehouses, where the company prioritised full price sales over its clearance operation.

"The sales performance by product category remains very similar to the second quarter, with home and childrenswear over-performing while demand for men's and women's formal and occasion clothing remains weak," Next said in a trading statement.e sales remain strong, both in the UK and overseas. In retail, out of town retail parks continue to perform better than high streets and shopping centres."

The retailer said the biggest risk was whether England, Scotland and Northern Ireland would follow the decision by Wales to shut non-essential retail shops as part of tougher short-term lockdown measures, adding that a widespread two-week shuttering would reduce retail full-price sales by about £57m.

"We have found no evidence of the virus being transmitted in our stores; nor are we aware of any studies that suggest clothing and homeware retail presents a significant risk of infection," the company said.

Next also revised figures on the impact of Brexit, including new tariffs due to come into force next year when the transition period ends on December 31. Tariffs were likely to increase annual costs by around £13m, assuming pre-Covid sale levels, lower than the £25m previously anticipated.

It added that the biggest single risk from a no-deal Brexit was that ports "do not cope effectively with increased levels of administration", but said its own systems were well prepared for such an outcome.

Susannah Streeter, equity analyst at Hargreaves Lansdown said that after the first lockdown, Next and other retailers "can now put a price on the cost" of further shutterings, adding that if drastic restrictions were imposed during the Christmas shopping period "sales will flounder".

"Already with the party season cancelled and working from home the norm, sales of occasionwear and formal wear are particularly weak," she said.