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Next fourth-quarter online sales growth comes close to compensating for in-store losses – but full-year profits expected to halve

Next's childrenswear sold more strongly than its adult clothing in the first quarter. Image courtesy of Next

Shoppers bought so much more online from Next over the peak trading period that the retailer has almost closed the gap left by sales lost in-store as a result of Covid-19 closures. But at the bottom line the retailer warned its full-year sales could be 54% lower than they were a year earlier.

Next says in a trading statement today that as of December 26, it had 24% more online customers than it did at the same time last year. And in the fourth quarter of its year – the nine weeks to December 26 – the fashion-to-homewares retailer’s full-price online sales (+38%) grew to an extent that made up for almost all the full-price sales lost in closed shops (-43%). Full price sales in the period were 0.5% lower than at the same time last year, and 1.1% lower when finance interest income (-13%) was included. That’s better than Next’s previous prediction of an 8% fall. 

Next’s UK online sales grew by 36% in the fourth quarter, by 30% in the second half, and by 9% in its full-year, all to December 26. Its overseas online sales have grown still faster – by 43% in fourth quarter, 31% in the second half and 13% in the full year. That means that overall online sales grew by 38% in the fourth quarter, 30% in the second half, and 10% over the full year. 

Its highest selling online weeks of the second half were both in the run up to Christmas – Next made online sales of about £80m in the week of November 29 and the week of December 6. 

In-store retail sales lagged behind, falling by 43% in the fourth quarter, 30% in the second half and by 46% over the full year.

Overall, full-price product sales fell by 0.5% in the fourth quarter, grew by 1.8% in the second half and fell by 16.5% over the year to December 26. Including interest income from finance, total full price sales are expected to be 15.9% down over the full year. 

Next, ranked Elite in RXUK Top500 research, now expects to make a full-year pre-tax profit of £370m before one-off costs. One-off costs include £97m put aside against the increased costs of running its stores. Next now expects in-store sales to fall on a like-for-like basis into the foreseeable future, rather than starting to plateau at a lower level, as previously expected. It also includes an extra £12m profit as a result of the year being a 53-week year. As a result, bottom line pre-tax profit is expected to come in at about £342m. That’s 54% down from the £748.5m it reported a year earlier.

How shoppers bought as peak season shopping moved online

Next says that over the nine weeks to December 26 shoppers have opted to buy clothing for children, sports and for staying in at home, as well as homewares. But they have not bought adult clothing for work, parties and going out. 

Returns rates fell to 21% from 36% last year, as shoppers bought items that tend to be less returned, and also became more selective when buying in the first place. Where stores were open, those located in out-of-town retail parks performed about 15% better than those in city centres and shopping centres. 

The January sales have also been affected by lockdowns and on Boxing Day half of its stores – by sales value – were closed. The retailer says it had 12% less surplus stock than last year when it went into the sale period, and it now expects clearance rates to be 4.8% lower than last year as footfall fell following Christmas. About 25% of stock was already expected to be cleared online, and the cost of doing so was expected to be £5m higher than expected since it costs more to sell off stock online than in stores. 

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