Next full-price sales rise, online beats offline pre-Christmas

By

Sandra Halliday

Published
Jan 3, 2018

There’s been a lot of speculation about how Next fared over the Christmas trading period with a few analysts expecting something of a wipeout. So did it happen? No.

In fact, the retail giant said Wednesday that November and December full-price sales (up to December 24) actually rose 1.5%, easily outstripping the 0.2% rise for the financial year-to-date.

That was good news for the under-pressure chain and came after guidance in November was for sales to fall by 0.3% in the period.

The company won’t exactly be breaking out the champagne just yet as 1.5% still didn’t take it out of the danger zone during a period that should be any retailer’s biggest trading season. But it certainly suggests that the firm’s turnaround plan is starting to yield results.

Of course, that doesn’t mean all parts of the business are as buoyant as others. The company said both its channels (online and physical stores) “experienced an improvement in sales” but it’s no surprise that online was the strongest channel. 

Its offline full-price retail sales dropped by 6.1% in the period but at least that was better than the 7.2% fall for the year as a whole. Online meanwhile accelerated to a 13.6% rise, better than the 10.4% increase the company has seen for its financial year-to-date.

And how did it achieve the improvement? Well, Next has been working hard to get its product right and this is likely to have made an impact. But the company also said that colder weather leading up to Christmas was a factor. And we can’t ignore the impact of space expansion with the company saying 1.1% of the sales rise was down to more selling space.

SLOW AND STEADY

Clearly, the recovery is a slow burn. But it’s certainly happening. The company also released a bar chart showing its progression through the year with Q1 having seen a 3% sales decline, Q2 a 0.7% increase, Q3 a 1.3% rise and that latest 1.5% uplift.

Admittedly, the figures it has given only represent full-price sales but the company is one of the most rigorous in the UK as far as controlling its markdowns is concerned so in this case, full-price does paint an almost-complete picture.

And as far as clearance product goes, Next said that stock for its end-of-season sale (including the stock it put into its Black Friday event) was “well controlled and down 6% on last year,” presumably reflecting both better buying and those higher full-price sales. It also said clearance rates are in line with its expectations and “are consistent with the profit guidance we gave in November.” 

What does it all mean for the bottom line? The better-than-expected full-price sales mean that it’s “marginally” upgrading its profit guidance for the financial year that ends this month. Its central guidance for group profit has increased by £8 million to £725 million and its profit guidance range is between £718m and £732m. “Where we fall within this range will depend on our sales in January,” it said.

And, as mentioned, for the full year it’s now predicting total full-price sales to rise 0.3% rather than falling by the same amount as had been expected.

CHALLENGES AHEAD

Clearly the turnaround is happening. But the company said that many of the challenges it faced last year “look set to continue into the year ahead.”  

Next is seeing subdued consumer demand “driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in cost prices”. But it expects that “some of these headwinds will ease” as it moves through the year. “We already know that cost price inflation will reduce to 2% in the first half and believe it will disappear in the second half,” it said.

It’s now budgeting for full-price sales next year to be anywhere between a 2% fall and a 4% rise.