Clothing retailer Next (NXT) upgraded full year profit guidance yet again following stronger than expected Christmas sales and said it will pay a further special dividend at the end of January and plans to return to its pre-pandemic ordinary dividend cycle in the year ahead.
However, the high street bellwether’s fifth profit upgrade in 10 months wasn’t enough to lift the shares, which cheapened 0.9% to £79.70 as Next issued a cautious outlook for 2022 that warned of higher freight, manufacturing and wage costs in particular.
£70 MILLION SALES BEAT
In its closely-watched post-Christmas update, Next increased pre-tax profit guidance for the year to January 2022 by £22 million to £822 million, which would represent 9.8% growth versus the pre-Covid period two years ago, having grown two year full price sales by 20% in the eight weeks to Boxing Day.
This was some £70 million ahead of previous guidance for the festive period, with sales boosted by ‘a strong revival in NEXT branded adult formal and occasionwear’: more people bought suits as they returned to the office and Next shifted more dresses and smart clothes as socialising returned.
Robust sales were delivered, despite ‘materially’ lower than planned levels of stock in the run-up to Christmas and some ‘degradation’ in delivery service levels due to labour shortfalls, which Next attributed to ‘the strength of underlying consumer demand’ in the period.
Next now offers the ability to shop across multiple brands through a single place online, which is a lot more convenient for the shopper.
Led by CEO Simon Wolfson, Next’s initial guidance for the year to January 2023 is for full price sales to be up 7% versus the current year, which should send pre-tax profits 4.6% higher to £860 million.
Unfortunately, consensus was looking for profits of £880.8 million, so this represents a slight downgrade driven mostly by the impact of cost inflation.
CHALLENGING YEAR AHEAD
2022 is shaping up to be a more challenging year for Next with consumers facing rising household bills, higher interest rates and a National Insurance hike.
The retailer flagged the risk that the boost from pent-up demand and savings fades and a return to spending on overseas holidays and other social activities could depress demand for clothing and homewares.
Next will also have to contend with the impact of inflation in freight rates, manufacturing costs and UK wages.
‘We anticipate that average wage inflation across the NEXT Group will be 5.4%, driven by the increase in the national living wage of 6.6% along with wage inflation in sectors where there are labour shortages, most notably in warehousing and technology,’ warned the retailer.
THE SHORE CAPITAL VIEW
Shore Capital commented: ‘With many retailers reporting in the week ahead, we will be able to benchmark Next’s performance, but as ever, clothing and home retailer Next has delivered a relatively upbeat trading statement in tough trading conditions with the cancellation of many social events due to the spread of Omicron.
‘In our view, this shows both the relevance of the customer proposition and the strength of the capable management team led by Simon Wolfson and Amanda James.’
