- Festive sales up by 5 per cent
- 2023 remains uncertain
Next (NXT) has increased its profit guidance after a strong Christmas period, giving a welcome boost to the retail industry.
Full price sales were up 4.8 per cent in the nine weeks to 30 December, despite management predicting a 2 per cent fall. As a result, Next has increased its full-year profit before tax forecast by £20mn to £860mn, which is 4.5 per cent higher than last year.
In-person sales drove growth, and management said it had underestimated the negative effect Covid-19 had on shopping in 2021. The December cold snap also gave a “dramatic boost to sales” following an “unusually warm” autumn.
All eyes are now on the year ahead. Next said there is still a “high level of uncertainty”, but it expects full price sales for the year ending January 2024 to be down 1.5 per cent against the current year. Meanwhile, profit before tax is expected to drop by 7.6 per cent to £795mn.
Cost price inflation is due to peak at 8 per cent in the spring/summer season, before dipping to no more than 6 per cent in the second half. Pressure will be eased by lower cotton and polyester prices and new sources of supply. A weak pound could remain a problem, as 80 per cent of its contracts are negotiated in dollars, but the recent rise in sterling has eased some pressure here for now.
It is also worth keeping an eye on surplus stock. Markdown sales have jumped by 60 per cent year-on-year, which the group attributed to “exceptionally low surplus stock” in 2021. However, management said markdowns are “still somewhat higher than our ideal”, and rivals such as Marks & Spencer (MKS) have highlighted the danger of too many clearance sales.
For now, we stick with hold.
Last IC view: Hold, 4,791p, 29 September 2022
