Next LON:NXT, the Leicestershire-based multinational clothing, footwear and home products retailer published a trading statement for 2H22 today (5th January).
Recession? What recession? The clothing retailer reported better than expected sales in the nine weeks up to end of December 2022, with sales up 5% compared to 2021; a turnaround from the rather gloomy prediction that Next had predicted – a 2% fall in sales in the period.
The final tally was GBP66m better than the retailer’s own forecast.
Next opened trading today at 6,420p and was up to 6,532p within the first three hours of trading.
The FTSE100 company has, in the few days trading this year, offered a 12.5% return, but over one year is down -19% with its shares ranging between 4,306p and 8,179p, giving the company a market cap of GBP7.9bn.
Full price sales were up 4.8% on the same period in 2021, well ahead of guidance and has resulted in the company upping full year profit forecasts by GBP20m. As noted previously, that paves the way for EPS to come in some 6.9% higher than the figure from a year ago.
Multi-channel
The company, founded in 1864 is the UK largest clothing retailer by sales, and has three main channels: Next Retail, a chain of more than 550 retail branches in the UK; Next Directory, a home shopping catalogue and website with more than 3 million active customers; and Next International, with around 180 international stores in Europe, Asia and the Middle East.
The company has its own sourcing arm and operates the brand Lipsy, for young women. It started working in partnership with US fashion company, Gap Clothing NYSE:GPS, opening a number of Gap concessions in its stores, after Gap withdrew from the UK high street in 2021.
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Last November Next acquired the London-headquartered furniture retailer, Made.com – which had gone into administration, and the last month Next entered into a joint venture with Tom Joule to buy The Joules Group out of administration.
Cautious outlook
That said, the company remained cautious about 2023, expecting sales to fall 1.5% year-on-year and profit before tax to be GBP795m, down -7.6% versus the current year and in its current end-of-season sale had marked down items more heavily compared to 2021.
The company said in the statement: “Forecasting for the year ahead at this early stage comes with a high level of uncertainty. We have assumed that full price sales for the year ending January 2024 will be down -1.5% against the current year. Underlying product sales are expected to be down -2.2%.”
Next noted that interest income, from its consumer finance business, was expected to contribute 0.7% growth to sales, mainly as a result of consumer balances continuing their return to pre-pandemic levels.
“Some might think this forecast is overly cautious in the context of our performance in the second half of this year. However, we believe that the following factors are likely to dampen demand: Inflation in essential goods, particularly energy; rising mortgage costs as consumers’ fixed interest rate deals expire; and continued price inflation in our own products,” the company said.
Next: a bellwether for the UK High Street
Next is often seen as a bellwether for the UK High Street. Its Christmas sales have reflected the view of a number of retail analysts including the British Retail Consortium who predicted that sales growth will be weak in 2023, with many analysts seeing the first Covid-free Christmas for two years as a blip as opposed to a trend, with consumers deciding to have a ‘normalised’ festive season, but then shutting their purses in the New Year as a reaction the cost-of-living crisis.
Nevertheless, Next has weathered numerous recessions since it opened its first gentleman tailoring store in Leeds and has a strong enough brand to see it through the current climate.
