Next defies retail gloom with rise in profits but shares fall on weak start to autumn trading
Next reported a rise in pre-tax profits and sales this morning, as the retailer shrugged off tough trading conditions on the high street during the first half of 2019.
The group’s share price dropped four per cent in morning trading after it flagged a weak start to the autumn season as a result of the warm weather.
The figures
The fashion chain posted profits before tax of £319.6m in the half-year to July 2019, rising 2.7 per cent from the same period last year.
Total group sales also rose 3.7 per cent to £2.06bn, as a 12.6 per cent jump in online revenue offset a 5.5 per cent slump in retail sales.
Read more: Most retail landlords consider re-purposing property
Earnings per share (EPS) rose 7.5 per cent on last year.
The group also declared an ordinary interim dividend of 57.5p per share, rising 4.5 per cent on last year.
Read more: Hot weather fails to heat up the high street
Why it’s interesting
“So far, we have weathered the retail storm”. It is not a sentence you will come across very often in the financial reports of high street firms in 2019. Lower footfall, higher costs and more competition have been putting traditional retailers under immense pressure in recent years, with a number of flagship brands succumbing to closures or radical business overhauls.
But Next has survived many of those challenges, posting a slight rise in profits and sales in its half-year report this morning. Under boss Simon Wolfson – or Lord Wolfson of Aspley Guise to give him his proper title – the clothing chain has won plaudits for its ability to maintain tight stock and cost controls.
Yet shares in the company dropped four per cent in early morning trading – with Markets.com chief analyst Neil Wilson saying that “investors were perhaps looking for a bit more of a positive outlook, however well they know Lord Wolfson”.
Profitability at the firm’s stores remains under pressure amid soaring business rates, high rents and growing labour costs. But as research consultancy Retail Economics points out this morning, “the purpose of the store is rapidly evolving from mere distribution hubs to media channels which stage meaningful experiences, support online sales and build the brand”.
The ultimate picture is mixed: Next maintained its guidance but said that it had a “disappointing” start to the autumn season. Its cautious conclusion, that “although we can see a way through the woods, we are not out the other side yet”, will keep bears and bulls alike keeping a close eye on the retail chain.
What the group said
“So far, we have weathered the retail storm, we have adapted what we do and have a business model
that, for the moment, works in an online world,” the group said in a statement this morning.
It added: “But although we can see a way through the woods, we are not out the other side yet. Consumer markets remain extremely volatile, the online world changes rapidly, and the uncomfortable transition away from high retail rents is by no means complete.
“It would be a huge mistake to underestimate the scale of the challenge facing our business or assume that, from here-on-in, all will progress smoothly.”