After profits wiped out...
Online strength allows Next to upgrade forecast
Next has seen its stores suffer like other retailers
Profits at fashion retailer Next were all but wiped out in the first half – down 97% from £320m to £9m – but it has revised its forecast sharply upwards to £300m for the full year as the company’s sales performance through the pandemic has been more resilient than expected.
It admitted that it was “fortunate” that its online sales accounted for more than half of its turnover going into the pandemic.
“We had the scale online to make up for some of the business we lost, and continue to lose, from our stores,” it said in a half-year statement.
“Interestingly, sales online have been significantly stronger since our stores reopened than they were before the pandemic struck. It appears that some lockdown habits have stuck, and we have been able to take advantage of this shift to online.”
It said the scale of the online business (in the UK and overseas) and the fact that much of its store portfolio is located out of town, have served to mitigate the worst effects of the pandemic on trade.
“The company’s finances are in good shape. We have reduced our stock levels and costs as the pandemic progressed.”
It said that while the pandemic has been hugely expensive and disruptive there has been much to learn from the experience.
“We have discovered powerful ways to improve our warehouse and call centre operations. Perhaps more importantly, the experience of having to work from home has opened our eyes to new and better ways of working, collaborating and communicating amongst ourselves and with our suppliers.
“We have consciously increased our appetite for new ideas, along with our willingness to take on the risks associated with investing in new projects. The pandemic has created a more fluid environment in which opportunities are likely to emerge at speed.
“It was a stroke of good fortune that the product areas that did well, also had much lower rates of return. So every item despatched was less likely to come back and more likely to convert into a sale. This meant that limited picking and packing capacity was used to best effect.”
Full price sales down 33% on last year, but full price sales in the last seven weeks up 4% on last year.
It expects full price sales for the rest of the year to be down 12% and profit before tax of £300m, up from the central scenario of £195m given in July’s Trading Statement.
Next has agreed terms with Lbrands to set up a joint venture selling Victoria’s Secret and Pink products under licence in the UK and Ireland.