Next anticipates rise in cost prices as it reports on Q2 trading

Next has reported on trading for the 26 weeks to 30th July 2016.

The trading update advised that full price sales in Q2 increased by 0.3% on last year, an improvement on the first quarter, while Next’s own-brand, full price sales for the year to date decreased by 0.3% on last year.

New space added +1.5% to Next branded sales for the first half, whilst NEXT Directory continued to benefit from growth in overseas sales and improved stock availability.

Next advised that it expected profits to drop this year as a result of a tough trading environment. Profit forecasts for 2016 are now expected to reach between £775 million and £845 million before tax, compared with a previous estimate of £748 million and £852 million.

Commenting on the impact on demand of the EU referendum, Next said:

“With only a few weeks since the EU referendum it would be unwise to draw any firm conclusions of the effect the decision to leave the EU will have on UK consumer demand, particularly as the week after the referendum was an unusually strong week the previous year. So far, we can see no clear evidence of any appreciable effect on consumer behaviour, apart from the first few days after the vote.”

The retailer currently has circa €200m sales revenues from EU countries (including Irish stores) and operates a warehouse and fulfilment operation based in Continental Europe.  In the trading update, Next said that this operation could be expanded to service most of its Continental Europe business in the unlikely event that fulfilling sales from the UK becomes less efficient.  In addition, Next stated that tariffs and other barriers to trade in Continental Europe are unlikely to be any different going forward, as most of its stock is manufactured outside the EU and already subject to EU customs and tariffs.

Next did state that the devaluation of the pound is expected to impact upon the cost price of goods, stating: "Although it is very early in the buying cycle, we currently estimate that cost prices in 2017/18 will rise by less than 5% on like-for-like products."

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Analyst View:

Martin Lane, a representative at www.money.co.uk said:

“OK so we haven’t had the best of summers and Brexit might have serious implications for Next, but I feel the retailer has done little to show they are willing to take risks to do battle with their competitors.   

“The way we buy our clothes has changed drastically in the last decade and in some ways Next are still a little stuck in the past. Arguably if they stopped producing their rather dated Next directory the money they would save could be reinvested back into their website or social media strategy.”    

Next will report on half-year trading on September 15th. 

Source : Insight DIY and Next Plc
www.nextplc.co.uk

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