- Hot weather and the easing of Covid restrictions lifted Next’s sales well beyond expectations
- The retailer’s older customer base and ecommerce push now leave it well-placed for the future
Brits have shopping fever, and Next (NXT) is reaping the rewards. Sales have far exceeded expectations during the summer heatwave, the retailer reported on Wednesday, as the easing of lockdown restrictions prompted consumers to splurge on new outfits.
In the 11 weeks to July, Next said full price sales rose 19 per cent compared to the same period in 2019, well above its central forecast of just 3 per cent. The company is now lifting its full-year profit guidance, repaying £29m of Covid business rates relief and planning to distribute £240m in surplus cash to shareholders through special dividends.
Next said it “does not expect sales to continue at these exceptionally strong levels”, adding that growth slowed significantly from mid-June once the warm weather passed. But the return of the summer heatwave in recent days, coupled with the removal of all Covid restrictions, may have reversed that trend.
Next’s positive results mirror a surge in retail sales across the country, which according to the British Retail Consortium grew at the fastest rate on record from April to June, as the easing of restrictions, the release of pent-up demand and the success of the England football team encouraged Brits to leave the house and splash out.
But despite the reopening of the high street, Next said it continued to see more substantial growth in website sales, suggesting the retailer can hold onto the online customers it picked up during lockdown. After cancelling all dividends last year, it plans to pay out 110p per share in September, followed by a second special dividend in January. Its central guidance for pre-tax profit has been increased almost 5 per cent to £750m, which if achieved would be its highest since 2017.
Shares in Next rose 8 per cent on Wednesday morning, leaving it with a valuation of 17 times forecast earnings for 2022. This still looks cheap relative to online retailer Asos (ASC), where growth has slowed recently as ongoing restrictions on party holidays and festivals prompt its younger customers to cut back on purchases. Next’s latest update shows again how its early move online has left it well-placed to capitalise on both the rise of ecommerce and the endurance of high street shopping. Buy at 7,962p.
Last IC view: Buy, 7,920p, 7 Apr 2021
