May 6, 2021
Next continued to show just how strong it has been in recent periods on Thursday as
the retailer increased its guidance due to sales dipping only slightly in the latest quarter.
The fast-expanding company had expected full-price sales to fall 10% in Q1 — the 13 weeks to May 1 — but they only fell by 1.5%, compared to the more ‘normal’ Q1 in 2019, with sales £75 million higher than predicted.
It has therefore raised its pre-tax profit guidance for the year by £20 million to £720 million. It hasn’t take into account any possible higher-than-expected sales in Q2, 3 and 4, so if those quarters also come in better than expected, we could expect further upgrades as the year unfolds.
Looking at the detail of what happened in the period, the company said full-price sales (excluding VAT and compared to 2019) rose 63% at Next UK Online. They were up 71% at Next Label UK (its third-party business that also includes its Lipsy brand), and 67% at Online Overseas. That meant online sales in total rose 65%.
But its Retail division covering the UK and Ireland saw full-price sales falling 76%, and total Product full-price sales fell 0.6%. Finance interest income fell 12%.
It’s important to note that looking at the figures alone doesn’t paint a full picture of what actually happened in the quarter. But Next explained it very well.
It said: “Overall full-price product sales (excluding interest income) were only down 0.6% despite the 10-week closure of our Retail stores. The number makes it appear as if almost all the sales we lost in stores were simply transferred Online. This was not the case. In fact, very few of the Retail sales lost on adult clothing were recovered Online. In reality, it was the growth in Online sales of Next Homeware, third-party brands (through Label) and Next Childrenswear, along with increasing sales Overseas, that served to make up for the sales we lost in our stores.”
What that means is that Next brand adult clothing full-price sales fell 46%, or by £150 million, while Next brand kidswear rose 2%, or by £3 million, and Home rose 12%, or by £17 million. That took the Next brand’s sales down 22% overall with a loss of £130 million worth of sales. UK Label sales, by contrast, rose 67%, or by £64 million.
But that was then. So what’s happening now? The company said full-price sales have accelerated almost every week this year, with a marked uplift in the few weeks following the reopening of stores in England and Wales on April 12. In the last three weeks, sales have been “exceptionally strong and, versus two years ago, total full-price sales were up 19%”. In that period, full price sales in like-for-like Retail stores were up 2% and Online sales were up 52%, so both its stores and its webstore seem to be feeling the benefit as the UK reopens.
But the company is staying cautious, as its new guidance mentioned earlier suggests. It said the evidence from 2020 hints at the “post-lockdown surge being short-lived” and it expects sales to settle back down to its guidance levels within the next few weeks, which is why it's not upgrading its guidance for the current quarter or the second half.