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Next results signal a good Christmas for UK retailers Next results signal a good Christmas for UK retailers
(about 9 hours later)
Next has raised hopes for the retail sector by revealing a better than expected Christmas, with strong online sales offsetting a fall at its high street stores. Next has raised hopes for the retail sector by revealing a better than expected Christmas, with strong online sales more than offsetting grim trading at its high street stores.
In a trading statement, the clothing and home chain said sales rose 1.5% in the 54 days to 24 December. A fall of 0.3% had been forecast. The clothing and home chain said overall sales rose 1.5% in the 54 days to 24 December in a trading statement that kicked off the festive reporting season. A fall of 0.3% had been forecast.
Shares in Next, the first major retailer to report on festive trading, jumped almost 10% in early trading. Marks & Spencer and Primark-owner Associated British Foods were also up, rising about 3%, on hopes that they may also have fared better than expected. Next upgraded its profit expectations for the year to January by £8m, to £725m, after sales received a last-minute boost from the colder weather in the run-up to Christmas.
Next upgraded its profit expectations for the year to January by £8m, to £725m, after sales benefited from the colder weather in the run-up to Christmas. Profit guidance is now between £718m and £732m and performance will depend on the clearance sales in January. Simon Wolfson, the chief executive of Next, said many shoppers had picked up cold weather gear for the first time in several seasons as snow and ice hit large parts of the country. “It’s really the first cold winter we have had for about three years,” he said.
Lord Simon Wolfson, chief executive of Next, said many shoppers had picked up cold weather gear for the first time in several seasons as snow and ice hit large parts of the country. “It’s really the first cold winter we have had for about three years,” he said. Shares in Next jumped almost 7%. Marks & Spencer, the Primark owner Associated British Foods, Sports Direct, Boohoo.com and JD Sports were also up on hopes that they may have fared better than expected too.
But he added that trading was only slightly better than expected and the outperformance of the business was “not enough to say there has been a huge change in the consumer economy.” The Co-op also enjoyed a bumper Christmas, with sales up 6.2% at established stores in the two weeks to 1 January. The mutual had expected a strong festive season as its small shops were able to stay open longer than supermarkets on a Sunday, giving them an edge on Christmas Eve.
Wolfson said Next’s online Directory business had picked up orders when snow limited access to high streets and retail parks. He added that shoppers were more comfortable with ordering for next-day delivery resulting in more online sales closer to Christmas. Lord Wolfson said Next’s trading was “not enough to say there has been a huge change in the consumer economy”.
Next said all its growth came online, where sales rose 13.6%. The chain’s high street stores suffered a 6.1% slump. That pattern is expected to be repeated across the retail sector as companies including Marks & Spencer, Debenhams, John Lewis and House of Fraser next week reveal how they fared over the most important part of the trading year. He said Next’s online Directory business picked up orders when snow kept shoppers away from stores, and that consumers were more confident about next-day delivery promises, which meant more online sales closer to Christmas.
Retailers were expected to have suffered a tricky trading period after several reported poor autumn sales. Next shares dived in October after it warned of “extremely volatile” trading, with shop sales falling. All of Next’s growth was online, where sales rose 13.6%. Its high street stores suffered a 6.1% slump. That pattern is expected to be repeated across the retail sector next week as companies including Marks & Spencer, Debenhams, John Lewis and House of Fraser report on the most important part of the trading year.
Despite Next’s better than expected Christmas, the company warned of a difficult year ahead in which profits were likely to fall. It said costs were likely to rise by about 2% in the first half of the year while sales would rise by 1%. The number of in-store shoppers was down 2.3% between 27 and 30 December compared with the same period last year, according to monitoring service Springboard. Numbers dived 10.5% on New Year’s Eve as Storm Dylan kept shoppers at home.
“Many of the challenges we faced last year look set to continue into the year ahead. Subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in our cost prices remain challenges for 2018,” the company said in a statement. Retailers had been expected to suffer a tricky trading period after several reported poor autumn sales. Next shares dived in October when it warned of “extremely volatile” trading.
But Next said cost price inflation was easing and was likely to disappear in the second half of the year. Price rises are expected to slow from 4% over the last year to 2%. Alistair Davies, a retail analyst at Investec Securities, said there would be relief that trading at Next was better than expected. But he added: “We would caution against reading too much across to other retail stocks – the reality is that even though Next’s Christmas numbers are better than expected, the company has still had a tough Christmas.”
“The inflationary bubble that hit the UK economy as a result of the pound’s fall will come out of the our numbers and we are hoping that will affect the wider economy as well,” Wolfson said. The company warned of a difficult year ahead in which profits were likely to fall. It said costs were expected to rise faster than sales, with shoppers being held back by declining real incomes and a preference for spending on restaurants, holidays and leisure than clothes.
Wolfson said cost price inflation was easing and was likely to disappear in the second half of the year. Clothing price rises were expected to slow from 4% over the last year to 2% in the first half of 2018.
“The inflationary bubble that hit the UK economy as a result of the pound’s fall will come out of the numbers and we are hoping that will affect the wider economy as well.”
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