UK fashion retailer Next (NXT) has upgraded its ‘central’ pre-tax profit guidance for the year to January 2022 by £20 million after first quarter sales beat expectations by £75 million. The company now anticipates £720 million of pre-tax profit.
Shares in Next, labelled the ‘British apparel queen’ by Shore Capital, nudged 2.3% higher to a record £83.12.
Next said it has profited from a post-lockdown sales surge following the reopening of non-essential retail on 12 April. The clothing and homewares business unexpectedly upped its 2022 profit guidance by £30 million to £700 million last month on the back of continued online outperformance.
£75 MILLION SALES ‘BEAT’
Full price sales in the thirteen weeks to 1 May were down 1.5% on the pre-pandemic period two years ago and Next’s previous central guidance had assumed a 10% quarterly fall, so it beat its own first quarter forecast by £75 million.
Almost all of Next’s brick and mortar stores were shuttered for the first ten weeks of the quarter, with the majority reopening on 12 April.
‘The strong sales growth we have experienced in the last three weeks is due to pent-up demand built up over the last three months and is very unlikely to be indicative of demand for the rest of the year,’ cautioned Next, a quality retail operator known for issuing conservative guidance to the market.
ONLINE SHIFT CONTINUES
Next said sales have proved ‘exceptionally strong’ in the last three weeks, with full price sales 19% ahead versus two years ago, retail like-for-like sales ahead by 2% and online sales up 52% over the same comparable period, demonstrating the unstoppable channel shift to the web.
Erring on the side of caution, the high street clothing giant hasn’t raised its sales guidance for the rest of the year, sticking with its guidance for 3% growth over the pre-pandemic period two years ago.
‘Evidence from last year suggests that this post lockdown surge will be short lived,’ explained Next, ‘and we expect sales to settle back down to our guidance levels within the next few weeks. Within this guidance, we have maintained the assumption that retail will be down 20% and online will be up 24%.’
THE EXPERT’S VIEW
Just over three weeks since non-essential shops reopened in England, investors are now getting a feel for how retailers have fared with their new-found freedom.
And in Next’s case, ‘the company has done very well, citing pent-up demand built up over lockdown’, said AJ Bell investment director Russ Mould.
‘However, it doesn’t believe the strong sales growth of the past three weeks is the shape of things to come. That’s a sensible view.’
Mould explained that lots of people will have built up cash savings during the various lockdowns, so there is the capacity to spend big in the shops.
‘The question is whether people might spend their money elsewhere, given how we’ve already been spending heavily via online channels to have clothes, trainers and other treats delivered home to relieve the boredom of lockdown. Consumers might now prefer to keep their cash for leisure activities and holidays when allowed.’
Mould added: ‘Next could feasibly get another sales tailwind if more people are called back to work in the office, as there seems a good chance that many people will have put on a few pounds during lockdown and need bigger trousers or shirts.
‘For now, the company will just have to focus on running its business efficiently and offer as wide a range of products as possible to keep attracting customers.’
