UK clothing retailer Next upgrades profit forecast for second time

Fashion retailer Next has upgraded its profit forecast for the second time this year after reporting more resilient sales than it expected, but still struck a cautious note on second-half trading.

The FTSE 100 group now expects full-year pre-tax profit of about £300m, up from an estimate of £195m given at the end of July. Sales in the most recent seven-week period were up 4 per cent, helped by cooler weather and fewer people taking holidays.

However, the company still expects full-year sales to fall 12 per cent, citing the end of the government’s furlough scheme and uncertainty over the trajectory of the pandemic.

It added that England’s “rule of six”, which limits social gatherings, “is likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers”.

The revised profit forecast is slightly ahead of the current consensus among stock market analysts of £287m, but still less than half the £700m the company made in the year to January 2020.

Even under its most pessimistic forecast, Next expects to make a profit of £110m for the full year. Its most optimistic outcome is £370m.

European clothing retailers Hennes & Mauritz and Inditex, parent of Zara, both earlier this week said they had begun to enjoy a marked improvement this summer after coronavirus sharply depressed their sales earlier in 2020.

Next chief executive Simon Wolfson said that while the Covid-19 pandemic had been “hugely expensive and disruptive”, the company’s strong online business, exposure to categories such as loungewear and childrenswear and substantial sales of homewares had helped it.

It also benefited from a high proportion of out-of-town stores. Retail parks have seen a stronger recovery in footfall than town centres or shopping malls since the UK’s non-essential retailers were permitted to reopen on June 15.

An expected increase in arrears and bad debts in its credit business has also not yet materialised, although it is still providing for some deterioration.

For the six months to July, the group reported a 34 per cent decline in sales to £1.34bn and pre-tax profit was just £9m. Sales in the stores fell by three-fifths because of the UK’s 12-week lockdown, while online sales were down 14 per cent.


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