Next predicts £1bn profit after cold weather boosts sales
Next has upgraded its profit forecast for the year to over £1bn after better-than-expected sales in its third quarter.
The FTSE 100 retail giant, which is headquartered in Leicester, has upgraded its guidance from £995m to £1.005bn.
In an update to the London Stock Exchange, Next said full price sales in the three months to 30 October were up 7.6 per cent on last year, 2.6 per cent ahead of guidance for the quarter.
The earlier arrival of cold weather boosted performance, Next said, with shoppers looking to update their wardrobes for autumn.
The retailer also upgraded its guidance for full-price sales by 4.9 per cent, to £5.0bn, and its total group sales – which include markdowns and subsidiaries – by 7.4 per cent to £6.27bn.
“Upgrading on budget day is a very bullish sign and shows just how confident the management team are. And why shouldn’t they be, when the third quarter is a beat, upgrades are delivered, and the expectations set for the fourth quarter are cautious,” analysts at Panmure Liberum said.
“With profitability improving and interest rates declining, there could be additional cash returns. We remain optimistic on Next’s prospects for profitable growth in the medium term – recent USD weakness should also help next year,” Panmure analysts added.
A ‘steady, positive trend’
A darling of the stock market, known for a steady string of solid results, Next has witnessed a resurgence in recent years. It has upgraded its profit guidance for the last ten trading updates in a row.
“UK retail star Next has done it again. The company is an expert at managing expectations, frequently setting the bar low with cautious guidance and then leaping over it,” Russ Mould, investment director at AJ Bell, said.
“To see full-price sales come in meaningfully above expectations is impressive in an uncertain consumer backdrop – for a change, we’ve got a company thanking rather than cursing the weather gods as chilly temperatures helped it sell higher price tag items like coats and jackets.
“With the shares in touching distance of all-time highs and some typical caution on display in terms of the outlook it’s perhaps not a surprise to see this update get a reasonably muted response,” Mould added.
Peel Hunt rated the stock a ‘Buy’ adding that “consumer patterns remain volatile, although there’s a steady, positive underlying trend.”
How did Next get here?
With a focus on reliability and value, Next has slowly built a brand that has thrived as other big names like Topshop and Debenhams collapsed.
Like other bricks-and-mortar retailers, Next suffered during the pandemic, and faced seven years in which its retail business would shrink by 18 per cent.
However, it adapted by successfully shifting from retail to online, particularly through the acquisition of struggling brands it is able to sell on its website.
In 2004, retail stores accounted for 72 per cent of the Group’s total sales and 70 per cent of profit. Today, retail accounts for 30 per cent of sales and just 19 per cent of profits.
The company has also zeroed in on overseas expansion, with its international business exceeding expectations in the last year. Its online overseas sales grew by 20.4 per cent in the third quarter.
Next said in September that the significant changes which occurred during and post the pandemic have now largely stabilised, and that “this year feels like the start of a new phase in the Company’s development”.