Disappointing sales leave Next doubtful over profits in 2012

RETAILER Next reported “disappointing” sales over the past two months and said difficulties in the euro zone countries are starting to damage consumer behaviour in the UK.

Britain’s second biggest clothing retailer after Marks & Spencer kicked off the festive reporting season yesterday with a warning that profits over the next year will be modest.

Next’s chief executive Simon Wolfson said: “My sense is the underlying economic situation is slightly worse than it was in September and that the only thing that’s really changed is the situation in Europe.”

Hide Ad
Hide Ad

He added that the European crisis has stalled employment growth and hit consumer sentiment, business confidence and the banking sector.

Shares in the group fell three per cent last night to close down 85p at 2656p.

Next said that while it will meet profit forecasts for the year to the end of this month, it has concerns about the following year.

The group said it expects modest growth in overall 2012 sales with profit before tax only slightly up on this year.

Hide Ad
Hide Ad

Next, which has a long standing policy of never going on sale before Christmas, said total sales rose 3.1 per cent between August 1 and December 24.

Sales at its 520 stores fell 2.7 per cent, but this was offset by a 16.9 per cent leap in sales at its home shopping service Next Directory, which sells goods over the Internet or by phone.

The group does not report like-for-like sales, but analysts estimated they fell by around six or seven per cent.

Next said it was disappointed with sales in November and December as macro headwinds and high levels of competitor discounting took their toll.

Hide Ad
Hide Ad

Lord Wolfson said discounting by Next’s rivals was more intense than anything he has seen previously.

Analysts had hoped for a better performance as 2010’s pre-Christmas sales were hit by the Arctic weather that deterred shoppers in the run-up to Christmas Day.

But Next was left with 10 per cent more stock in its clearance sale than the previous year.

Shoppers queued up in their thousands for the Next Boxing Day sale to pick up goods selling for half price or less, but Lord Wolfson described the mood of the consumer as “subdued”.

“I think people are just saving money.

Hide Ad
Hide Ad

“We have not seen anything like the spending after Christmas that would make up for the lack of spending before Christmas,” he said. “It’s not that people are spending at a different time, they are spending less.”

He said Next would not abandon its policy of never going on sale before Christmas and the group will continue to focus on improving profits.

The good news for shoppers is that unlike last year, when cotton and other raw material prices rocketed, there are no price rises expected this year.

The company, which has 40 stores in Yorkshire, predicted the squeeze on consumers will ease this year, particularly in the second quarter, as inflation growth slows down.

Hide Ad
Hide Ad

However the euro zone crisis and rising unemployment will weigh on people’s minds instead.

“A number of factors have subdued sales in the final quarter and it is hard to judge to what extent warm winter weather and higher levels of competitor discounting masked the deeper, longer-lasting economic effects,” said Lord Wolfson.

The group, which has been one of the best-performing stocks in the FTSE 100 Index over the past year, narrowed its 2011/12 profits guidance to £7m either side of £565m, which would represent a four per increase on the previous year.

Peter Smedley, an analyst at Charles Stanley, said some forecasts for next year are likely to trimmed, but generally Next is holding up well compared with some of its rivals on the nation’s high streets.

Hide Ad
Hide Ad

“Even in a very tough clothing retail market characterised by higher levels of competitor discounting, Next’s no-discounting policy looks to have held up well again,” he said.

Matthew McEachran, retail analyst at Singer Capital Markets, said: “Trading over the peak period appears to have been weaker than feared in retail.

“Coupled with concerns about employment and nervousness about the euro zone, this has led management to issue cautious guidance for January 2013 which may lead to downgrades of around three per cent.

“This is likely to weigh on the premium rated shares which have performed well recently.”

Related topics: