(Sharecast News) - Fashion retailer Next pulled its dividend plan and share buybacks to save almost ?500m as sales plunged faster than expected due to the coronavirus lockdown.
Total product sales in the quarter to April 25 plunged 41% as the company was forced to shutter all its stores and close online operations for two weeks. The dividend cancellation would save ?220m and share buyback suspension ?260m.
Store sales plummeted 52% while online sales were down 32%.The fashion and homewares retailer also warned it could incur losses of ?150m as full price sales collapse by up to 40% under new modelling, far worse than the 25% drop predicted last month.
The company said the fall off in sales to date had been "faster and steeper than anticipated in our March stress test and we are now modelling lower sales for both the first and second half of the year".
"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 company said on Wednesday.
Next said it had taken measures to bolster its balance sheet by reaching agreement with its banks to waive financial covenants in its revolving credit facility and securing extra borrowing through the government's Covid corporate financing facility, although it was not permitted to disclose the size of its loan.
The company added that it was pulling in an extra ?155m in cash with the sale and leaseback of three warehouses and its headquarters in Leicester. It also saved ?290m by cancelling stock orders and made ?120m in other cost savings, including marketing and distribution.
Next said it now believed its finances are as secure as when it announced in March, if not more so, adding that even in a new worst case scenario that envisaged year full-price sales down 40%, the mitigation it had put in place meant it could operate within its cash resources and would end the year with less net financial debt than at the same time last year.
The company restarted online sales after a two-week closure as it put in place safety and hygiene procedures to deal with staff worries over coronavirus. It shuttered warehousing facilities on 26 March and stopped internet sales as workers felt unsafe at being unable to practice safe social distancing measures.
Hargreaves Lansdown analyst Sophie Lund-Yates said the store closures meant Next had to find extra storage for increased inventory levels.
"This is a tricky spot to be in, because no retailer wants a huge pile of clearance items at the best of times. With trading expected to be subdued for a while even after lockdowns are lifted, shifting all the extra summer T-shirts is going to be a more difficult task than usual," she said.
"Larger, out of town stores are going to be reopened first. A number of factors, including roomier car parks, make these sites more suitable for social distancing measures. We suspect other shops may follow suit, which could provide retail parks with an unexpected edge over the high streets, as the UK gets used to a new normal."
Next (NXT)9 May 2024 15:49
