Next sales beat guidance, but store performance worries investors
Next sales beat guidance in the retailer’s third quarter with a two per cent rise, it revealed today.
However, retail sales dropped 6.3 per cent in the three months to the end of October, saved by a 9.7 per cent increase in online revenue.
Read more: Next defies retail gloom with rise in profits
Warm weather knocked sales in September, when they rose just one per cent, before October enjoyed a five per cent jump in sales.
Next said the change was weather-related, adding that November and December will not see such strong sales growth.
“Sales in September were adversely affected by unusually warm weather and we saw a significant improvement in October when temperatures fell,” the retailer said.
“We believe the improved sales growth in October recouped some of the lost sales in September and we do not expect sales growth for the rest of the year to be as strong as October.”
Overall sales rose two per cent over the three months and were up 3.5 per cent in the year to the end of October.
The high street giant, seen as an economic bellwether, stuck to full year guidance given in September that will see it earn £725m in profit before tax, up 0.3 per cent year on year.
Read more: High street footfall has fallen 10 per cent over the last seven years
Full price sales are expected to rise 3.6 per cent year on year. And earnings per share are set to grow 5.2 per cent compared to last year, according to the guidance.
Digital darling
Arlene Ewing, investment manager at Brewin Dolphin, said Next has bucked the high street’s “dreary” outlook, praising the retailer for its resilience.
“The bricks and mortar offering might be in decline, but the online business is delivering solid growth, along with its financing division,” she said.
“Increasing numbers of third-party brands want to use its directory and logistics businesses, while its customer service levels remain high.
“Although Next has been relatively cool on its expectations for the remainder of the year after a particularly strong October, the business appears to be in a very good place.”
Richard Lim, chief executive of research house Retail Economics, said that while in-store sales continued to face pressure, Next’s physical and digital sales were “working in harmony”.
“Overall, these are solid numbers and reflect the successful repositioning of the business in recent years,” he added.
Next’s store sales decline concerns investors
However, Next’s share price fell almost three per cent in early trading to 6,646p as investors expected a better sales performance under chief exec Lord Simon Wolfson.
Analysts warned that Next’s stores are a cause for shareholder concern despite its successful transition to digital.
“This is a significant decline and one that investors are finding hard to digest,” warned Ask Traders’ senior market analyst, Steve Miley.
Begbies Traynor partner Julie Palmer added that Next remains a rare high street success story,. But she questioned what Next will do about its declining stores, saying the business must continue to innovate.
“Next has a big decision to make about what role its physical stores will have in its future,” she said.
“Does it see its high-street stores as a place where goods are sold, or will it begin to use these stores as an experience to capture the attentions, loyalty and imagination of customers to see and try the products before they buy online?”