Next has boosted its full-year profit expectations, and says it now believes that online sales will grow faster and in-store sales will fall slower than previously expected.
The fashion-to-homewares retailer said in a second-quarter trading statement today that total sales – including discounted items – grew by 3.8% in the first half of the year, to July 27, with full-price sales up by 4.3%. In-store retail sales were down by 3.9% over the six months but online sales grew by 11.9%.
For the full-year, to January 2020, the retailer now expects that in-store retail sales will decline by 5.1% – lower than the previous forecast of 8.5% – while online sales will grow by 11.8% – higher than previous forecasts of 11%. As a result it expects full-price sales to grow by 3.6% in the year, higher than its previous expectation of 1.7% growth. Pre-tax profit is now forecast at £725m, from £715m previously. That represents growth of 0.3%, compared to the previously-forecast decline of 1.1%.
Next, ranked Leading in IRUK Top500 research, said that full-price sales in the second quarter of the year were better than expected, rising by 4% on last year. That’s well ahead of the expected 0.5% decline that the retailer forecast in May. While full-price sales grew by 3% in May and June combined, they were 6.8% ahead in July, influenced by lower markdown prices in the end-of season sale. The retailer went into the sale with surplus stock 1% down on last year, but clearance rates were 2% lower than expected. However, Next said that it would base its forecasts on the May/June rate of growth rather than the July outcome.
The move to predict that sales will rise by almost double saw shares rise 8% in morning trading, said Sofie Willmott, lead retail analyst at data and analytics business GlobalData.
“Ongoing channel polarisation is is evident and we forecast that Next’s online channel will have overtaken stores in H1,” she said. “However the shift to online is slowing and notably the biggest change in Next’s full-year guidance has come from the store division with retail full-price sales growth adjusted up by 3.4 percentage points (ppts) (although still expected to be negative at -5.1%) versus a minor adjustment of 0.8ppts for online sales growth. Next has worked hard to improve the appear of its stores, adding coffee shops and concessions to create interest while also driving footfall by offering one-hour click and collect and partnering with Amazon by acting as a collection point. Although these initiatives are not enough to reverse the trend of falling footfall they are going some way to slow the decline and other retailers should take note of Next’s creativity and willingness to trial ideas.”
Image courtesy of Next