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'Not all doom and gloom' at Next

Analysts are confident Next’s sales figures for the second quarter of the year form an encouraging outlook for the retailer, despite a drop in sales. 

Total sales for the three months to 29 July fell 2.1% compared to last year at Next, despite warmer weather and an improvement in full-price sales, which inched up 0.7% on 2016.

In-store sales fell 7.4%, but online and directory sales grew 11.4% on last year.

Management said it remains “cautious” in the current consumer environment.

However, Peel Hunt analyst Jonathan Pritchard said the results will have “highly positive consequences” for the sector.

He said: “We think that management is being a little modest when playing down the importance of better ranges in the improved performance, but Next is definitely right to flag the better weather as a factor.[…] It is not all gloom and doom and the right product at the right price is selling well.”

He added that during Q2, Next was in “positive territory for full-price sales growth”: “Month by month the change in mood is very clear: May saw another weak period but June and July averaged 3.5%.

“Better product is mentioned quietly as a factor, as is online functionality, but the weather is noted as the biggest factor. That’s probably right, but Next is notoriously self-critical so it won’t all have been down to the added sunshine. It’s difficult however to imagine that the sector as a whole won’t take this as a positive.”

Meanwhile Lee Wild, head of equity strategy at Interactive Investor, noted the results caused a “palpable sense of relief in City circles”, but added that management is “rightly cautious”.

“Inflation, higher costs, weak consumer confidence and online rivalry have made life tough for Next, but it also took its eye off the game, neglecting its bread and butter ranges,” said Wild.

“Next won’t always be able to rely on the weather, and it can also work the other way. However, there is an opportunity for Next to pull something out of the bag. Like today, shareholders will be richly rewarded if it does, possibly as early as first-half results in September.”

However, others were less optimistic.

City Index market analyst Ben Flint said that while the favourable weather and dividend payout marked “bright” spots, it “hasn’t brought a great deal of joy to investors”.

He said: “Some could be disappointed that the company’s full-year profit guidance, downgraded slightly in March, has been held steady by the retailer despite all the sunshine.

“Sales were indeed higher than expected in June and July, but Next didn’t manage to clear as much stock as hoped during its end-of-season sale, neutralising the benefit.”

Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit, agreed, saying that the retailer did not benefit from July’s heatwave in the same way that other retailers did.

“The decline in same store sales is a cause for concern given the boost that the warm weather should have provided and the relative performance of other clothing retailers who seem to have benefited more from July’s heatwave,” said Copestake.

“Going forward, Next may need to address the divergent fortunes of its bricks and mortar and online operations to ensure that it can deliver a more consistent path to growth.”

However, he said the retailer will be “encouraged” by the overall rise in sales, market response to the numbers and the announcement of a third special dividend.

 

 

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