Next reports disappointing Christmas after mild autumn

Next Shop

Retailer Next has reported a “disappointing” performance over Christmas, with sales hit by the unusually warm weather in November and December.

The group, which is the first of the major retailers to update on its festive performance, lowered its profits guidance for the full year as it said shoppers had left “winter weight” clothing on the shelves.

“This quarter was unusual in that we didn’t have any cold weeks. There’s not a lot you can do. When it’s warm in winter people don’t buy T-shirts and shorts,” said chief executive Lord Wolfson.

It was the mildest December in the UK since records began and Next provided a graph to show the impact of the weather on its sales.

Full price sales at the group’s high street chain fell by 0.5% between 26 October and 24 December while sales at the Next’s catalogue and online business, Directory, rose just 2%. Overall sales were up by 0.4%, below City forecasts of around 4%.

Wolfson said increasing competition online – in terms of delivery options and discounting – and poor product availability had also hit performance. “A lot of competitors have got their act together this year. It is partly about delivery cut-off times while this time last year quite a few people had operational issues and that didn’t happen again.”

He said Next’s Directory sales were probably 2% lower than they could have been as it had under-estimated the growing influence of its website in comparison to its big seasonal catalogue. That meant Next had not stocked up on enough of the fresh products which it releases later in the season which are not featured in the big book.

Next is now changing the way it buys product to account for the different way people shop; Wolfson said the new system would be fully in place by next autumn.

However, he admitted that the company would have to be “cautious on the UK element of the Next brand” and that the main opportunities for growth were taking Next overseas online and expanding its Label catalogue which sells other brands.

The group has revised its full-year profit estimate to £817m, an increase of 4.4% on the previous year. This is at the lower end of its previous range of between £810m and £845m, although Wolfson said the figure could increase or decrease by £7m depending on how January trading.

Analysts said Next’s sales performance, particularly at the Directory, was disappointing and raised fears it would now struggle to achieve growth, but profits had held up surprisingly well.

This was partly because Next remained aloof from the widespread discounting that swept the retail sector ahead of Christmas, starting its sale on Boxing Day. The company said it had maintained profit margins as a result.

“The disappointing Directory results are likely to ressurect concerns about the maturity of the channel. Next, however, has an outstanding record and has achieved guidance even if it is at the lower end of the range in a volatile trading environment,” said Freddie George at Cantor Fitzgerald.

The disappointing performance from Next over the festive period will raise fears that other retailers, which took part in the rash of discounting before Christmas, will have fared even worse, particularly Marks & Spencer and Debenhams. M&S is due to update the market on Thursday while John Lewis reports on Wednesday.

Shares in Next were the biggest fallers in the FTSE 100, dropping by almost 5%, to £68.50. Shares in M&S fell 1.5% to 428.5p.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said that Next had provided “a stark reminder that the situation within retail is precarious.”

Powered by Guardian.co.ukThis article was written by Sarah Butlerand Fiona Walsh, for theguardian.com on Tuesday 5th January 2016 12.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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