Next Q1 sales dip is smaller than expected, but it's staying ultra-cautious
Next released a Q1 trading statement on Thursday, and while sales dipped, they did so by less than had been expected so the result was far from gloomy against the backdrop of a very tough trading environment.
In the 13 weeks to the end of April, the company’s full-price sales – which exclude VAT – were down a narrow 0.7% year-on-year. The retailer’s guidance had been for sales to drop by as much as 2%.
That said, Next is always cautious when issuing guidance, and it's maintaining its current profit forecast for the full year with pre-tax profit expected to be £795 million and earnings per share of 501.9p.
Looking at the performance in more detail, the company was heavily boosted by strong finance interest income. In fact, while its Online division’s full-price sales were down 1.6% and Retail (that is, physical stores) sales dropped 0.6%, finance interest income was up 7.4%. Total full-price sales across Online and Retail were down 1.2%, but that finance boost helped the company get to the aforementioned 0.7% drop.
The retail giant also said that total trading sales, with general markdowns and the result of its seasonal Clearance event taken into account, were up 1.2% on the year. That figures excludes sales through Total Platform and Joules.
Last year it had very little Clearance event inventory available, due to stock shortages in the run up to Christmas 2021. This year, “Clearance stock levels have returned to normal and are commensurate with pre-Covid levels”.
Given the overall difficult conditions out there, the company doesn't seem to be doing too badly. So why hasn't it upgraded its guidance?
Next said: “Although our first-quarter performance moderately exceeded our sales guidance, we believe it is too early in the year to alter our overall sales expectations for either the half or full year.”
In fact, it's clearly erring on the side of caution, and has adjusted its Q2 sales guidance from a fall of 4% to a fall of 5%. “This adjustment seems reasonable, as some of the first quarter's success, particularly in holiday clothing sales leading up to Easter, might have been pulled forward from the second quarter,” it explained.
And to further justify its stance, it added: “Shareholders might wonder why we are so cautious for sales in Q2. As we explained in March, the second quarter last year benefited from unusually warm weather and pent-up demand for events such as weddings, proms etc.”
We'll have to wait a few months to hear whether it was right to be cautious, or whether a sunny summer might encourage UK consumers to buy more fashion products. Its next update won't arrive until 3 August.
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