Next Q3 Sales 'Better Than Anticipated'

Next has reported on third quarter trading, advising that full price sales were better than anticipated and were up +2.8% against last year.  Total sales (including markdown sales) were up +1.4%.

Full year profit before tax is now forecast at £365m, £65m higher than the central scenario given in September. 

Year end net debt is forecast to reduce by £487m to £625m.

SALES FOR THE THIRD QUARTER AND YEAR TO DATE

The table below sets out the full price sales performance by business channel versus last year for the third quarter and year to date. 

Product Sales

The sales performance by product category remains very similar to the second quarter, with Home and Childrenswear over-performing while demand for men's and women's formal and occasion clothing remains weak.  Online sales remain strong, both in the UK and overseas.  In Retail, out of town retail parks continue to perform better than high streets and shopping centres.

Finance Interest Income

Finance interest income fell by -13% in the third quarter driven by lower customer balances, which were down -16% on the previous year.  These lower balances were as a result of much lower credit sales during lockdown in March, April and May (in the first half, credit sales were down -26%).  In the third quarter, we saw a significant recovery in credit sales, which were up +1% against last year.

Monthly customer payments (as a percentage of customer balances) in the third quarter were 14.8%, a material increase on the same measure last year which was 12.5%.  Default rates remain below last year.  So as yet, we have not seen any adverse effects on the quality of our consumer debt.  However, with current levels of economic uncertainty, we are maintaining the additional £20m bad debt provision that we charged in the first half.

We expect that improving credit sales (which would increase average balances) will be offset by higher payment rates, resulting in average balances and interest income remaining down around -16% in the fourth quarter.

Markdown Sales

Markdown sales were down -12.3% against last year.  This reduction was driven by (1) lower footfall in our Retail stores and (2) capacity constraints in our Online warehouses, where we have chosen to prioritise full price sales over our clearance operation.

SALES, PROFIT AND CASH SCENARIOS

We have revised our guidance scenarios for the fourth quarter, which are set out below.  There remains a very high degree of uncertainty in our estimates and much will depend on the progress of the pandemic, along with the Government and consumer reaction to developments.  Our assumptions for each scenario regarding further lockdowns, Retail footfall, capacity constraints and stock are also given in the table.  We would not want to give the impression that the assumptions below and their consequences are scientific or precise; they are intended to give an indication of the sort of things that might help or hinder sales in the run up to Christmas.

Source : Next

Image : Mykolastock / Shutterstock.com

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