Next still booming, says its outlook is better than for many years
Next reported a strong six-month performance on Wednesday and said that the good news has carried on into its second half, despite issues such as stock shortages. Overall, with stores now open again, online hasn’t slowed as much as expected and shops have proved more popular than predicted, all of which means it’s upgraded its sales and profit guidance.
The half-year to July saw brand full-price sales rising 8.8% compared to the same period in 2019 (2YoY). And they rose a whole 62% against 2020 (YoY). Its profit before tax of £347 million was also 5.9% higher YoY and net profit was 8.5% higher at £289.6 million.
Equally good news is that the full-price sales performance in the last eight weeks has been strong — up 20% 2YoY, and “materially exceeding our expectations”. After the latest performance, it’s upgrading its full-year sales guidance to be up 10% compared to 2019.
It’s also expecting profit before tax (post-IFRS 16) of £800 million, up 6.9% versus 2019 and £36 million ahead of its previous guidance.
Looking more closely at its sales figures for the first half, as well as those brand full-price sales rising almost 9%, brand total sales rose 8.4% and on a statutory basis, group sales were up 5.2% (including revenues from its finance division). Compared to 2020, total brand sales soared 63.4%.
Online sales rose 52% 2YoY to £1.522 billion and 76% YoY. Store sales were down 38% 2YoY to £540.1 million, due to lockdowns, but were up 57% YoY.
The company said that throughout the pandemic demand for goods online was stronger than it could have hoped, particularly in home and childrenswear. “This serves to fill much of a gap left by retail store closures, a trend that appears to have strengthened in the lockdown at the start of this year”, it said.
But it also saw an "unexpected post-lockdown bounce” with “the retail bounce-back far stronger than we anticipated”. Store sales have been better than planned, while online sales have fallen back less than expected.
The positive sales trend continued through August into the second half, despite “significant stock shortages caused by Covid disruption to international supply chains”.
But it's also cautioning that underlying conditions may not be as good as they currently appear and the combined effect of pent-up demand for clothing, record levels of consumer savings and fewer overseas holidays have boosted sales artificially in recent months. The impact “must inevitably diminish as time goes on”.
Add to that the impact of rising inflation and the potential effect of seasonal labour shortages on its delivery service, and it thinks demand may moderate in the months ahead, even though it’s coping well at the moment.
But aside from those issues, it believes that “the longer-term outlook for Next appears to be more positive than it has been for many years”.
The financial drag of its retail business has diminished and online is booming. The development of its own Next product ranges, fast growth in its customer base, the growing success of its Label offer and the launch of its Total Platform business all bode well for the company.
It sees huge opportunities ahead, particularly online where it can offer a wider range of sizes and a broader span of prices, as well as new product categories. And it also sees major opportunities in selling third-party brands, announcing that it wants to be “our branded partners most profitable third-party route to market”.
And the company's Total Platform is another key part of its growth plan where it runs the online operations of other brands. So far, it has six clients signed up, including Gap, Reiss, Laura Ashley, Victoria’s Secret, Aubin and Childsplay Clothing.
The delivery of the Reiss platform next spring will be its “most ambitious and comprehensive” to date and will "materially increase Total Platform’s capabilities, providing services such as delivery to wholesale customers, concession partners and overseas retail stores, along with a suite of tax and import functionality, including the provision of bonded UK warehousing”.
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