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Next enjoys Christmas trading lift as shop prices fall

Next Straiton

Next enjoyed a rise in sales

Fashion and home furnishings chain Next has reported better than expected Christmas trading with full price sales in the period 1.1% (£9m) better than its internal forecast. 

It said the sales performance was helped by a much colder November than last year and improved stock availability in its stores and online.

Year to date sales are up 3.9% and the firm has raised its full year profit guidance by £2m (0.6%) to £727m.

Market reaction

Russ Mould, investment director at AJ Bell, said: “All the market data suggested a very difficult Christmas trading period for retailers, so how is it that Next managed to buck the trend?

“The simple answer is that growth in the online channel is boosting earnings, so weakness on the high street is less of a worry. Also in its favour is growth in full price sales, highlighting how some shopkeepers don’t have to resort to heavy discounting to shift goods.

“But there is more to the Next story than that. The company has been quietly reshaping itself to become more relevant to the modern world.

“Approximately 10% of revenue now comes from selling third party brands, 9% of revenue is generated outside of the UK and 6% comes from selling credit to customers. Shops are acting as pick-up hubs for online orders and Next has been negotiating more competitive rents when leases come up for renewal.

“The 7.8% growth in finance interest income in the 11 months to 28 December is a reminder of the importance of credit to its earnings. This is also perhaps an underestimated risk to the business in terms of any tighter credit regulation in the future and customers’ ability to settle their debts in an economic downturn.

“Next is currently giving customers what they want and in a way that is most convenient to them. Retailers who cannot do the same will not survive. However, one mustn’t lose sight of the fact that Next is not bulletproof and is still exposed to external factors like economic conditions and changes in financial regulation.

“Its shareholders have been richly rewarded with 80% total return (share price gain and dividends) in the past year, and today’s update helped give the stock another lift. The big question is for how long can this strong run continue?”

Shop prices flat

Next’s update came as the retail sector said shop prices fell by 0.4% in December compared to a 0.5% decrease in November. This is below the 12-month average of 0% and in line with the 6-month average price decrease of 0.4%.  

Helen Dickinson, chief executive of the British Retail Consortium: “Shop Prices continued to fall in December as receding inflationary pressures, weak consumer demand and intense competition combined to keep price increases at bay. 2019 has been a particularly challenging year, with historically weak sales growth. 

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