Next beats best-case scenario as online sales pick up

The fall was better than the best-case scenario that Next had forecast in April, and comes after online sales rose 9 per cent over the three months, offsetting a drop in shop sales.

It was a big swing from the one-third drop in online sales in the three months to April 25.

Next told shareholders on Wednesday morning: “Our experience over the last 13 weeks has given us much greater clarity on our online capabilities during lockdown and the state of consumer demand, and we are now more optimistic about the outlook for the full year than we were at the height of the pandemic.”

In April, the company said its best-case scenario for the year involved a 30 per cent drop in full-price sales. Its updated best case predicts an 18 per cent drop.

The news sent shares up 9 per cent to 5,744p.

Julie Palmer, a partner at restructuring firm Begbies Traynor, said: “Next is a pioneer for the retail sector and has bucked the high street trend and seen sales start to climb against the grain of retail decline.

“But the fall-out from the coronavirus is the company’s latest test and chief executive (Lord) Simon Wolfson will be wary that the challenges are only just beginning.”

The business is now estimating it will make a £195m pre-tax profit, while it will pay off £460m of its £1.1bn debt.

However, while online sales performed better in the second quarter than it had this time last year, sales in shops dropped by 72 per cent as the pandemic forced them to close.

Since they reopened, like-for-like sales in the shops have dropped by 32 per cent, Next said.

Ms Palmer added: “The retailer has invested heavily in its digital offering, which has kept the business on solid ground, countering the drop in physical store sales.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “Next has signalled some good news for the retail sector.

“Demand in the second quarter has been better than expected and the outlook for the full year has been substantially upgraded. Performance is being bolstered by having warehouse capacity back up and running at normal levels.

“Next also has some specific benefits to shout about; namely that stock has been very well controlled – the amount of excess stock that found its way into the end of season sale was only up 1 per cent on last year.

“Retailers are spinning a lot of plates, but stock management is arguably the most important.

“Piles of unsold items can ultimately act as a drag on gross margins and cash flow. Next customers can also look forward to the fact £150m worth of this summer’s stock is simply being brought out next year.

“The other major bugbear for shops is a high volume of returns. These also eat into margins and profits, but lockdowns meant Next customers were holding on to what they’d bought more than usual. That’s because things like loungewear tends to be returned less often anyway, as well as the fact people were less inclined to leave their homes to sort out a return.”

Editor’s note: first and foremost - and rarely have I written down these words with more sincerity - I hope this finds you well.

Almost certainly you are here because you value the quality and the integrity of the journalism produced by The Yorkshire Post’s journalists - almost all of which live alongside you in Yorkshire, spending the wages they earn with Yorkshire businesses - who last year took this title to the industry watchdog’s Most Trusted Newspaper in Britain accolade.

And that is why I must make an urgent request of you: as advertising revenue declines, your support becomes evermore crucial to the maintenance of the journalistic standards expected of The Yorkshire Post. If you can, safely, please buy a paper or take up a subscription. We want to continue to make you proud of Yorkshire’s National Newspaper but we are going to need your help.

Postal subscription copies can be ordered by calling 0330 4030066 or by emailing [email protected]. Vouchers, to be exchanged at retail sales outlets - our newsagents need you, too - can be subscribed to by contacting subscriptions on 0330 1235950 or by visiting www.localsubsplus.co.uk where you should select The Yorkshire Post from the list of titles available.

If you want to help right now, download our tablet app from the App / Play Stores. Every contribution you make helps to provide this county with the best regional journalism in the country.

Sincerely. Thank you.

James Mitchinson

Editor