- Retail bellwether ups profit guidance
- Full price sales rose 4.8% in nine weeks to 30 December
- Next remains cautious about year ahead
Shares in Next (NXT) topped the FTSE 100 on Thursday, ticking up 7.2% to £65.38 after the resilient clothing-to-homewares retailer raised its full-year earnings guidance off the back of better-than-expected Christmas sales.
However, cost pressures and the squeeze on consumers’ disposable incomes from inflation and rising mortgage payments, mean the retail bellwether remains cautious about the year to January 2024, for which it forecasts a 1.5% sales decline and a 7.6% pre-tax profit reverse to £795 million.
BRINGING RETAIL JOY
Led by retail guru Simon Wolfson, Next now sees pre-tax profits for the year to January 2023 coming in at £860 million, a £20 million upgrade on previous guidance and representing robust year-on-year growth of 4.5%.
Based on this upgraded profit guidance, EPS (earnings per share) would be 567.2p, up 6.9% versus last year.
Full price sales were up 4.8% in the 9 weeks to 30 December 2022, well above Next’s earlier guidance for a 2% sales decline, with the performance of retail stores proving particularly strong.
Next benefited from December’s cold snap, which boosted demand for its winter wares, while the absence of pandemic restrictions this Christmas aided the performance of brick and mortar stores.
‘We believe that the strength of demand for cold weather products in December was partly a result of pent-up demand from an unusually warm October and November’, explained Next, adding that its end-of-season sale is ‘progressing well’ with stock clearance rates ‘ahead of our expectations’.
EXPERT VIEWS
Charlie Huggins, head of equities at Wealth Club, said the retail environment is set to ‘get tougher still’ next year and Next’s sales and profits are expected to ‘fall modestly’ as cost pressures take their toll.
That said, this outlook is ‘not as bad as it could have been at the time of the disastrous mini-budget, when sterling was in the doldrums.
‘Next expects cost inflation to peak at around 8% in the spring summer season before coming down. That looks a lot more manageable than it did a few months ago, largely reflecting the recovery of sterling (80% of Next’s purchases are in US dollars).
‘Next, and the rest of UK retail, are still facing a very difficult economy in 2023. But if the recovery in sterling is sustained, it will certainly provide some succour. And even if it doesn’t, Next looks better positioned than most retailers to weather the storm.’
Shore Capital’s Eleonora Dani, who has a ‘hold’ rating on Next, commented: ‘We believe there will be some short-term pain, with apparel forecasted to shrink 7% this year, but we continue to see Next as a market share winner in the context of a macroeconomic downturn.’
Liberum Capital expects Next to take market share from weaker competitors thanks to its diverse product portfolio, improved retail store business profitability, expanding LABEL business and Total Platform client base, not to mention its recent acquisitions out of administration of well-established brands like Made and Joules.
‘The group has a strong financial position which leaves the group in a very strong position in the current consumer environment,’ said Liberum, ‘and we expect the group to come out of it stronger as the demand environment improves and return to delivering double-digit returns to shareholders.’
