Next has hiked its profit guidance for a second time this year as sales bounce back from their lockdown nadir, but warned that the “rule of six” could hit the key Christmas trading period.
Analysts believe the absence of Christmas parties and big family get-togethers could result in billions of pounds in lost sales of clothing and food for retail and hospitality firms, and Next chief executive Simon Wolfson said the new rule, if still in force in December, “is likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers.”
At the start of the Covid-19 crisis, Next had predicted that the pandemic would have a disastrous impact on its finances, but sales have actually held up better than it anticipated, boosted by staycation wardrobe updates and new home furnishings, said Wolfson. Sales over the past seven weeks have been running 4% ahead of the same period in 2019.
Shares in the fashion chain jumped more than 4% to £64.26, making Next the biggest riser in the FTSE-100 on Thursday. The shares have recouped most of the ground lost when the pandemic hit in March and stockmarkets went into freefall. From changing hands at £70 each at the turn of this year, they sank to little more than £33 at the beginning of April.
However, the Next boss does not expect the strong trading to continue until Christmas; the company reckons sales will still finish down 12% this year.
The better than expected trading performance means Next now expects to make profits of £300m, more than 50% up on the £195m it forecast back in July. That would be less than half the £728m it made in 2019, but in April the company had feared it could post losses of up to £150m this year.
The pandemic had been “expensive and miserable” for the Leicester-based business, Wolfson said. The lockdown not only forced the closure of its almost 500 stores, but as the health crisis intensified, the company’s website, which is behind more than half its sales, also closed for a short period while its warehouses were made safe for workers to return.
The high street lockdown had a devastating impact on its store chain, which sank to an operating loss of £175m in the six months to 25 July. The group was pulled out of the red by its website and finance arm, with the group eking out an interim profit of just £9m – a tiny fraction of the £320m it reported year ago.
“The company’s sales performance through the pandemic has been more resilient than we expected,” Wolfson explained. “The scale of our online business, the breadth of our product offer, and the fact that much of our store portfolio is located out of town, have served to mitigate the worst effects of the pandemic on trade.”
The crisis still put a big dent in Next’s sales, which were down by a third at £1.4bn for the period. The company’s bestsellers were also completely different as Britons adapted to lockdown living. In some weeks, sales in areas such as men’s and women’s suits, occasion dresses, formal shoes and party clothes were down as much as 80% on last year. In contrast, childrenswear, sportswear, loungewear and home products had all performed much better.
Next also confirmed its new joint venture with Victoria’s Secret, which fell into administration at the start of the summer. The lingerie brand, once renowned for its controversial fashion shows featuring models known as “angels”, gives Next access to a potentially younger consumer.
Next said the partnership, which requires regulatory approval, will see it operate 18 Victoria’s Secret standalone stores as well as sell the brand in its own stores and online.
“The impact of the pandemic decimated demand for new outfits, but these figures show resilience during these horrendous conditions,” said Richard Lim, the chief executive of Retail Economics. “This is about weathering the storm more effectively than the competition, and Next is well positioned following years of investment in their digital proposition while many others remain in survival mode.”