Next suffers in Q1, says autumn season should see improvement

By

Sandra Halliday

Published
May 4, 2017

There are some trading statements that just come and go without making much of a stir and then there are trading statements from Next. The fashion and homewares retailer’s presence in almost every mall, retail park or high street in Britain means it can’t be ignored and with the former stock market darling having stumbled of late, its news is even more compelling.

So what news did Thursday morning’s trading update give us? Its Q1 sales to April 29 were down 3%. Ouch. The company had said at its full-year results announcement in March that sales would hover anywhere from down 3.5% to up 2.5%, but coming in almost at the bottom of that fairly wide range was clearly disappointing. And total sales including markdowns fell too, dropping 2.5%.

So what went wrong? The Next Retail operations (that is, the brand’s stores) were obviously where the problem lay, with a full-price sales drop of 8.1%. Next Directory meanwhile, which is largely made up of online sales, rose 3.3%. Sales from new space added 1.6% to the overall turnover total.

While the news was bleak, at least the March and April figure (combined to take into account the easter calendar shift) was better than February with full-price sales down 4.6% in the first month of the quarter and down only 2.2% in the next two months.

Where does that leave Next in terms of its expectations for the current year as a whole? The company said the “UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero.

“In our full year results announcement in March we talked about omissions in some of our product ranges. We said that we expected some improvements from May onwards, but that our ranges would not be where we wanted them to be until the autumn season in September. We still believe this to be the case.”

The company has issued new profit guidance, sticking to its lower estimate but reducing the upper estimate. That means it now expects full-price sales to be anywhere from 3.5% down to 0.5% up (rather than a possible 2.5% rise as previously expected). Pre-tax profit could be anywhere from 13.9% down to 6.4% down (previously its upper-end guidance suggested profit might only fall by 1.3%).

While the company still has good cashflow and is paying healthy dividends to its shareholders, it obviously has work to do to get back to full health. Next believes improvements should start to be seen in the autumn season but given the state of the UK fashion retail market, it’s hard to tell just how much better things can get. That said, Next has bounced back strongly from tough times before so it’s far to early to write off its chances just yet.