Hot weather helped clothing and homeware retailer Next avoid the high street gloom in the first half of the year, but the retailer warned the boom was likely to be balanced out by trading in the next six months.
Shares in Next slid 6 per cent to £55.80, as analysts queried what it would take for the high street’s outlook to brighten.
“Hopes had been high that the sunny weather, which boosts sales of all things summer season, would have led to Next upgrading profit expectations for the year,” said George Salmon, an analyst at Hargreaves Lansdown.
“That has not been the case. Next says it [would] rather wait and see how the remainder of the summer goes before moving guidance. This seems fair enough, but it will have left a few wondering if the best summer in years is not enough to upgrade profits, then what is?”
Next’s full price sales in the 12 weeks to July 28 were 2.8 per cent higher than the same period a year earlier, after 6 per cent annual growth in the previous 14 week period, which was flattered by weak trading in 2017. In May, Next had told investors to expect a 1 per cent rise in full price sales over the rest of the year.
Growth so far this year has been driven entirely by Next’s online business, which has evolved from its ubiquitous catalogues of the 1990s and early 2000s and offset declining bricks and mortar sales, which failed to revive despite the heatwave. Full price sales online were up 12.5 per cent in the second quarter, while retail — or in-store — sales were down almost 6 per cent.
Next cautioned that while the weather had likely attracted customers to buy extra items, some sales were also likely drawn forward from August.
“We believe that this over-achievement in sales was due to the prolonged period of exceptionally warm weather, which greatly assisted the sales of summer weight product. It is almost certain that some of these sales have been pulled forward from August, so we are maintaining our sales and profit guidance for the year to January 2019,” the company said in its trading update.
The retailer also made progress with managing its stock, previously an area where it — and other fashion brands such as H&M — has struggled. “Surplus stock in the first half has been well controlled and, as planned, we went into the Sale with around -20% less stock than last year. Clearance rates to date are better than expected and have added approximately £4m to profit,” Next said, but higher warehouse and distribution costs offset those gains.
Including both markdown and full price items, sales climbed 3.9 per cent year-on-year in the first half.