Next gets surprise Christmas gift as online sales boost profit hopes

Marco Green
January 12, 2018

Next has upped its FY2017/18 sales and profit expectations on the back of a better than expected Christmas sales performance.

The retailer expects total full-price sales this year to nudge up 0.3 per cent, rising to 1 per cent next year.

The company said on Wednesday that full-price sales rose by 1.5 per cent in the 54 days from 1 November to 24 December, compared to the same period a year earlier.

This is an improvement on the retailer's November guidance of a 0.3% fall. Nonetheless Next reported that the amount of stock it sold at a discount was down 6 per cent on the year before.

"As much as today's update is good news in itself (positive full price sales, outlook positive), and adds to share buyback and special dividend goodies, management's update-by-update tinkering of guidance (that's four in a row now), and sharp share price reactions only goes to reinforce how shareholders remain at the mercy of the United Kingdom consumer from one season to the next and exposed to short-termism".

The sales split between shops and online was notable, with retail down 6.1% or down 8% on a like-for-like basis, while online and catalogue sales under the Directory unit were up 13.6%.

The retailer warned that numerous challenges it faced a year ago, such as subdued consumer demand and lower spending on clothing, would persist in 2018.

Looking ahead, Next said numerous challenges it faced previous year look set to continue.

However, the firm added that it believes that "some of these headwinds will ease" through 2018, with inflation falling to 2% in the first half and disappearing in the second. We are budgeting for full price sales next year to grow by between -2% and +4%.

In light of the growing sales, Next has upgraded its profit guidance by £8 million, with a range now standing at between £718 million and £732 million. The decision to use the expected £300m of surplus cash generated next year to fund share buybacks rather than special dividends implies management believe the shares represent good value at the moment.

Inflation hit a multiyear year high of above 3 per cent at the tail end of 2017, and wage growth has been stagnant which has weighed on consumers' appetite for spending - especially on non-essential items.

George Salmon at Hargreaves Lansdown said the results were good news for investors across the retail sector. The long-serving CEO has an excellent reputation in the industry, so for him to say that one or two of the headwinds facing the UK's retailers should ease in the year ahead represents a significant fillip to the sector.

Other reports by Click Lancashire

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