Retail

Next: on message


Managing expectations is all part of the boss’s job. Simon Wolfson, who heads up high street fashion chain Next, carries it out with aplomb. He has overshot gloomy predictions twice already this year; now, releasing third-quarter numbers, he expects full-year pre-tax profits to come in at £365m. That’s more than double the best-case scenario pencilled in just six months ago. Analysts dutifully revised their own targets; the share price popped.

These are, of course, highly febrile times and Mr Wolfson was absolutely right to play Eeyore back in April. Britain had joined Italy and Spain in lockdown; shop floor mannequins, still smiling, were collecting dust. He was also on the money to note that the pandemic would not so much rewrite retail as accelerate trends already under way, such as the shift from high street to online. Some have even carried unexpected side benefits: it turns out customers are less likely to return the sort of items, like childrenswear, that are more popular right now. 

The upgrade also vindicates Next’s response to the pandemic, both on the balance sheet and operationally. But cause for disquiet remains. Take finance, a business line that, thanks to fat margins, contributed a fifth of pre-tax profit last year. When customers reined in shopping they also reined in borrowing: credit sales were down by about a quarter at the interim. 

The trouble now — for Next — is that borrowers are paying off their credit bills. That is both rational and in line with a mass move towards saving but it plays havoc with credit financiers’ business model. Next expects higher payment rates will keep interest income down some 16 per cent in the fourth quarter. 

Next is dialling back on the pessimism but only marginally: its best-case scenario is for sales to remain flat in the fourth quarter; worst case, it anticipates a 20 per cent drop. Like the rest of the high street, it is heading into an uncertain Christmas. Investors have been warned – repeatedly.

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.