Fashion retailer Next, which carried out extensive stress-testing at the outset of the Coronavirus pandemic, has seen overall sales fall 41% – with online dropping 32 and stores sales by 52% in the last quarter.
The retailer said that the fall had been faster and steeper than anticipated in its stress tests and it has been forced to increase its cash resources through asset sales, and by suspending share buybacks and dividend payments.
It has also taken further steps to secure its debt finances by agreeing with its banks to waive financial covenants in its Revolving Credit Facility (RCF) for the coming year. It has also secured additional borrowing facilities through the government’s Covid Corporate Financing Facility (CCFF).
The retailer now believes that its finances are “are as secure as when it announced in March, if not more so”.
Commenting, Nicky Stewart, Director and Head of Institutional Marketing, Edison Investment Research, says: “Next is now assuming lower sales for both H1 and H2. Offsetting this, the group can deliver higher cost savings and has increased cash resources through asset sales, and the suspension of buyback and dividends. It has also agreed covenant waivers with banks and secured further borrowing through the CCFF. In a worse-case scenario, of full price sales down 40% for the year, the group believes it remains in a secure position to weather the pandemic storm.”
As a result, the retailer is looking at opening up some stores soon, although it has said that it will focus on out-of-town outlet stores first, to help maintain social distancing and to protect customers and staff.
Stewart adds: “Warehouse picking re-opened on 14 April and 70% of its product range is now available on-line and plans are in place for a socially-distanced store re-opening, although it expects sales to be very subdued when that happens.”
Nigel Frith, a senior market analyst at www.asktraders.com adds: "We are now just over five weeks into the UK lockdown and businesses are starting to share the impact of how the coronavirus has affected them internally. Next said that store sales plunged 52% in the 13 weeks to April 25, maybe this was a problem before the pandemic even started? With an 86% drop in, in-store sales before the non-essential shops to close announcement, this certainly does not look good for Next. Even with its online shopping back up and running, it doesn’t seem to be pulling enough money through, could this be a consumer problem? Either way, COVID:19 has decided to rip through everyone - even longstanding high street members. The key here is to act quick, accordingly and consumer-focused based - otherwise this is probably the start of the end for them".