Next sales rise better-than-expected 4.5% during “volatile” and “challenging” first half

Christmas Trading

Next’s full price sales rose 4.5 per cent in its first half, ahead of the one per cent guidance it originally predicted at the start of the year.

Total sales including markdowns were up 3.9 per cent on last year as Next said it has raised its central guidance for full year profit before tax by £10 million to £727 million.

Group profit before tax was up 0.5 per cent and total earnings per share rose 4.9 per cent.

Total retail sales fell 6.9 per cent year on year to £925.1 million, although online retail sales were up 16.8 per cent to £892.3 million.

“The UK retail market remains volatile, subject to powerful structural and cyclical changes,” Next chief executive Lord Wolfson said in a statement this morning.

“Many of these headwinds have not abated. As expected, sales in our stores (which now account for just under half of our turnover) continue to be challenging,” he added.

“We believe the over-performance in the first half was flattered by the unusually warm summer and we remain cautious in our outlook for the rest of the year.”

In the half year to the end of July, retail profit dropped 23 per cent to £73.2 million, whilst online profit rose 21.1 per cent to £163.3 million.

Next noted that with such different stories for either side of the business emerging, it had experienced almost flat comparable profits after tax year on year, from £252.2 million in 2017 to £254.2 million in 2018.

“The fact that our retail sales have only fallen by 10 per cent in a period where like-for-like sales declined by 32 per cent is because we have continued to invest in profitable new space. The disciplines we have imposed on this investment programme have stood us in good stead.”

“Relatively short lease terms, high profitability hurdles, rigorous depreciation policies and a two year payback hurdle on capital invested, collectively mean that our Retail portfolio remains very profitable and our lease commitments relatively light.”

Next added that the current challenge in retail is “two fold”, citing retail costs and the role its stores play as part of its bigger picture as a household brand:

“Our aim is to manage rent levels and new lease terms to match today’s levels of trade and volatility. More importantly, we are intensely focused on increasing the role our stores play as an integral part of our Online Platform’s delivery and returns network.”

Despite forecasting in March 2018 that its retail space would increase by a net 100,000 sq ft for the year, Next noted that it has since decided to close seven of its Clearance stores at the end of their leases, and that it would close one more mainline store than expected while another opening has been delayed to early next year.

The decision brings its total trading space to an increase of just 42,000 sq ft for the year, indicative of the measures Next is taking behind the scene to soften the blow of the high street on its business.

Looking overseas, Next said it expects its online business to turn over £355 million in the current year and to account for just under 20 per cent of its online sales (excluding finance interest income).

Longer term, Next said its approach is to “build as much flexibility into our operations and cost base as is possible”, adding that they plan to “minimise the negative effects of falling retail sales and maximise opportunities for growth online.”

“This means a constant process of reinvention and experimentation within our business, whilst preserving the integrity of our brand, the calibre of our people, quality of the operations and the profitability of the Group.”

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