Next Raises Guidance As Q2 Sales Soar

Next has reported on Q2 trading, covering the eleven weeks to 17th July 2021.

Our sales during the last eleven weeks have been materially ahead of our expectations and, as a result, we are increasing our profit guidance for the full year.  We have brought forward our Trading Statement by two weeks, so this update replaces our Trading Statement planned for 4 August 2021. 

All sales comparisons in this Trading Statement are given relative to two years ago (2019/20) as comparisons with last year are not meaningful. 

HEADLINES

●     Full price sales in the eleven weeks to 17 July were up +18.6% versus two years ago.  Our previous central guidance assumed an increase of +3%. 

●     We have increased our full price sales guidance for the rest of the year from +3% to +6%. 

●     The Company has decided to repay £29m of business rates relief to the Government.  This sum accounts for the period of time this year that our shops were not charged business rates but were open.  This decision was taken after consulting major shareholders who, between them, account for around 30% of our shares in issue.

●     We are increasing our central guidance for full year profit before tax by +£30m to £750m (pre-IFRS 16).  This is towards the top of our previous guidance and accounts for (1) the profit from additional sales and (2) the cost of the unplanned repayment of business rates relief.

●    For the full year, surplus cash¹ is forecast to be £240m.  We plan to distribute this cash to shareholders through special dividends during the current financial year, the first of which will be paid in September.

¹ Surplus cash after working capital, capital expenditure, customer receivables, investments, interest and tax.

FULL PRICE SALES PERFORMANCE BY BUSINESS CHANNEL

The table below details sales growth for our Online, Retail and Finance businesses for the year to date.  For comparison, the left-hand column shows sales for Q1 (reported in our May trading statement), the second column gives the sales in the current quarter. 

POSSIBLE EXPLANATION FOR STRONG Q2 SALES

We believe that the following factors have contributed to the unexpectedly strong sales performance:

1.    Pent-up demand for adult clothing, with many customers having made few summer purchases during the last 18 months.

2.    The onset of extremely warm weather at the end of May and start of June.  Growth significantly slowed once the very warm weather passed.

3.    Fewer holidays overseas are likely to have increased domestic spending in the UK.

4.    Consumer savings have materially increased over the last year.

Second Half Full Price Sales Guidance

We do not expect sales to continue at these exceptionally strong levels but we are more optimistic about the outlook than we were three months ago, and have raised our sales guidance for the second half from +3% to +6%.

FULL PRICE SALES AND PROFIT GUIDANCE

Our revised central guidance for full price sales and profit before tax is set out below. 

It is important to note that our sales guidance assumes that our stores will be permitted to remain open and trade throughout the rest of the year.

Repayment of Business Rates Relief

Since our stores have reopened they have performed better than we expected, and we intend to repay any business rates relief we have received, or will receive, while our stores are open this year.  This decision was taken after consulting major shareholders who, between them, account for around 30% of our shares in issue.  Assuming that our stores remain open for the remainder of the financial year, we estimate the cost of this repayment will be £29m.

Source : Next PLC

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