Prudent Next prepares for sales wipeout

Next has modelled three scenarios that forecast full-price sales losses of £445m, £820m and £1bn, respectively, which would account for revenue declines of 10 per cent, 20 per cent and 25 per cent. These estimates include the business rates holiday granted by the government, but exclude the potential for any government lending. The group has moved to conserve as much cash as possible. Next has scrapped its final dividend and instead intends to pay a second half-year dividend of up to 116.5p in the autumn. 

A move to suspend August 2020 and January 2021 dividends would allow Next to preserve £220m, while it has already reduced its planned capital expenditure from £145m to £100m. Next spent £300m on share buybacks over its last financial year and had planned an outlay of £280m for the coming period. Having spent £20m so far, this programme has been suspended. The company is also on the verge of agreeing a £200m extension to its banking facilities, which it expects to be in place next month.

Next relied on its online channel for growth over its year to January 2020, which offset a 23 per cent slump in retail profits. Online profits rose 13 per cent to £400m, and measures taken over the period to improve deliveries and warehouse operations may prove vital in the coming months. Next’s finance segment also fared well, achieving profit growth of 15.3 per cent. The company expects its online business to outperform its retail arm again this year. 

While management admitted that its supply operation will also be affected by coronavirus, a significant drop in demand for both retail and online will prove more damaging to the business. “People do not buy a new outfit to stay at home,” chief executive Simon Wolfson mused.

Peel Hunt forecasts adjusted EPS of 483p for the year to January 2021, rising to 508p in FY2022.