As Next cut its full-year profit guidance by £25m today (October 29) after warm weather in September and October stunted sales of autumn stock, Drapers takes a look at what city analysts make of the retailer’s results.
Many were unsurprised that the Indian summer has hit sales of coats and knitwear, but believed Next’s ability to achieve growth during this period, albeit below expectations, was impressive.
Retail analyst Nick Bubb said:
“It certainly wasn’t a wipe-out and the famous weekly bar chart of year-on-year sales movements during the quarter shows that October was up every week, but some damage was done, because Next did not make up for the fall in sales that they suffered in September. None of that is a big surprise, but the slight disappointment is Next are not confident about making the Q3 shortfall up in the key Q4, given how tough the comps are at Christmas, and indeed have actually edged down their Q4 expectations.”
Honor Westnedge, lead analyst at Verdict said:
“Despite Next’s investment in transitional ranges and seasonal phasing, the warm autumn continues to offset sales of winter stock causing it to lower full year sales growth expectations. However, its product offer is strong and price points provide good value for money, so it will be one of the high street winners in the run up to Christmas, particularly since its strict stance on discounting activity will ensure consumers are prepared, and willing, to pay full price – a feature some its rivals will not benefit from.”
Stephen Springham, senior retail analyst at Planet Retail, said:
“Next’s Q3 trading performance is a testament to the underlying strength of the business. The autumn season to date has undoubtedly been very testing for the UK fashion sector as a whole. Next had already advised that sales had been slower than anticipated; nevertheless, 5-6% growth would be highly creditable against the wider market backdrop.”
He continued: “After a sluggish opening to the season the temptation will be to hit the promotions panic button or even to launch Sales in a desperate bid to stimulate traffic. Next will once again be the exception, holding off on any markdowns until after Christmas. A brave stance, given the slow start to seasonal trading, but fortune often favours the brave - as well as the operationally excellent.”
David Alexander, consultant at Conlumino, agreed.
“Given the obvious mitigating circumstances, it would be difficult to see this slightly disappointing period as anything more than a blip, with the retailer continuing to look a good bet for strong growth in the months to come. Few would bet against Next achieving a very swift turnaround should the weather gradually prove more conducive to consumers updating their winter wardrobes. With the nights now drawing in, it will surely not be too long before the mercury lowers and Next resumes its position as the darling of the clothing category.”
Alistair Davies, analyst at Investec, said:
“Next continues to be rightly valued on a sector premium, reflecting management focus on driving marginal retail gains and shareholder returns.”