Next sees strong year but cuts guidance, aims to be top online aggregator
Next has turned in another set of stellar full-year results (for the 12 months to January) but it cut its guidance due to the Russia-Ukraine situation and has also set out its ambition to be the "natural choice" online aggregator.
Looking first at its results, it said brand full-price sales rose 12.8% compared to the pre-pandemic year and 32.4% compared to the 2020 financial year. The company also made pre-tax profit of £823 million which was up 10% against 2019 and 140% against 2020.
Online sales rose 31.1% on a one-year basis and 44.6% on a two-year comparison, reaching £3.103 billion. Store retail sales rose 50.1% over one year but fell 22.7% over two years to £1.432 billion. Taking all aspects of its business into account, total group sales were up 34.1% over one year and 11.5% over two years at £4.861 billion.
And as far as profitability is concerned online profits surged 23.5% over one year and 43.4% over two years, but physical store retail profits plummeted on both a one- and two-year basis. However, the brand as a whole remains hugely profitable and operating profit at the company was £905.4 million up more than 100% on a one-year basis and 6% over two years. Net profit surged more than 136% compared to a year earlier and 11% over two years to reach £677.5 million.
But while the company is generally doing well, following the closure of its websites in Ukraine and Russia and after moderating its growth expectations in some other overseas territories, it has lowered its sales guidance for this year by around 2% or £85 million. That means profit guidance is scaled back by 1.2% or £10 million.
Of course, it’s still expecting sales and profits to rise by a heathy amount. Its new guidance includes an improved outlook for UK retail sales that has mitigated the anticipated loss of lower-margin sales overseas and the associated cost of increased markdowns. Its central case scenario for the year ahead is that full-price sales will increase by 5% and that group profits will increase by 3.3% to £850 million.
Looking back at 2021, which it called "a good year", the company said it exceeded all of its expectations, starting in Q1 when it made up for many sales lost by its temporarily closed store estate through its online operations. And despite stock shortages in the second half, its online operations performed well again. The H2 performance was largely fuelled by pent-up demand after lockdowns ended.
Important as well, the company launched four new clients on its Total Platform third-party online operation and that business delivered a profit in its first year of £10 million. That's expected to be around £20 million in the current year. The company said that the recent launch of Reiss is its "most ambitious and comprehensive Total Platform project to date”.
Despite its overall optimism, Next said the current year will be challenging with its strength in 2021 contrasting with 2022’s "unusually high level of geopolitical and economic uncertainty" That makes accurate guidance particularly difficult.
It had already listed factors such as consumer reaction to higher prices in other parts of their lives and the need for the company to raise its product prices as being likely to affect its performance this year. But that was before Russia invaded Ukraine and added an extra level of uncertainty.
And of course, the firm is also dealing with the “sea change” that has come about in the industry due to the pandemic, delivering change in a couple of years that it expected to take more than half a decade.
Next said “the change to our industry is more profound than a simple shift from high street stores to shopping online. The internet has served to dramatically increase shoppers' choices; bringing consumers more designs, more brands, more colours, more sizes and broader price ranges. Consumers in even the remotest parts of the UK can enjoy a choice of products that would put to shame the very best of the world’s high streets in the early 2000’s.
And with the growth of online aggregators, “the competitive environment has changed beyond recognition. [They] have become increasingly important (ASOS, Zalando, Tmall, Myntra, and many others, including Next); while many businesses, that seemed part of an immutable retail landscape, have all but disappeared.”
And it added that “it has never been less expensive or faster to set up and roll out a new brand. Brands can deliver their own fully functioning website, with national reach, in a matter of months (albeit the complexity and cost of website functionality are rising rapidly). More importantly, online aggregators can enable new brands to gain access to millions of customers worldwide and overnight.”
It said that in this environment, it's aim is clear and it's working to extend the Next brand’s breadth of offer and international reach while building an aggregation business that's the “natural first choice for fashion, homeware and beauty customers” in the UK and Ireland.
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