Next Raises Profit Guidance; Warns Pent-Up Demand Won't Last

Next has published a trading update covering the first quarter of the 2021 financial year.

• Full price sales in the thirteen weeks to 1 May were down -1.5% on two(1) years ago. Our previous central guidance assumed that Q1 would be down -10% and we have beaten this Q1 forecast by £75m. 
• We have increased our central guidance for full year profit before tax by +£20m to £720m(2).
• This profit upgrade accounts for the £75m sales over-achievement in Q1. We have not raised our sales guidance for the rest of the year, which remains at +3% against two years ago.

Product Full Price Sales Performance - Analysis and Explanation

Overall full price product sales (excluding interest income) were only down -0.6% despite the ten-week closure of our Retail stores. The number makes it appear as if almost all the sales we lost in stores were simply transferred Online. This was not the case. In fact, very few of the Retail sales lost on adult clothing were recovered Online. In reality, it was the growth in Online sales of NEXT Homeware, third-party brands (through LABEL) and NEXT Childrenswear, along with increasing sales Overseas, that served to make up for the sales we lost in our stores. The performance by category is clearly explained in the table below, which sets out the variance in total full price sales (i.e. Retail and Online added together) by product category and geography.

Full Price Sales by Week

The chart below shows full price sales by week and by sales channel. Finance interest income is shown in grey, Retail sales in green and Online product sales in blue. The dotted black line shows the total full price sales for 2019. The percentage variance against two years ago is shown at the top of each bar. Almost all of our Retail stores were closed for the first ten weeks of the quarter with the majority reopening on 12 April. The strong sales growth we have experienced in the last three weeks is due to pent-up demand built up over the last three months and is very unlikely to be indicative of demand for the rest of the year.

Post Lockdown Sales in Retail and Online
In the last three weeks sales have been exceptionally strong and, versus two years ago, total full price sales were up +19%. In that period, full price sales in like-for-like Retail stores were up +2% and Online sales were up +52%. 

Sales Expectations for the Rest of the Year
Evidence from last year suggests that this post lockdown surge will be short lived, and we expect sales to settle back down to our guidance levels within the next few weeks. We are therefore maintaining our sales guidance for full price sales for the rest of the year to be up +3% versus 2019. Within this guidance, we have maintained the assumption that Retail will be down -20% and Online will be up +24%3 .

Finance Interest Income
Interest income was down -12% in Q1 and in line with our expectations. We are maintaining our forecast for the full year to be down -8%. The reduction in interest income is due to the lower customer receivables balance, which reduced last year during the pandemic as a result of lower credit sales and strong payments. 

Full Price Sales And Profit Guidance
Full price sales to date have been £75m better than expected, adding around £20m of additional profit to our forecast. We are therefore increasing our central guidance for profit before tax from £700m to £720m. 

Our next sales update will cover the first 26 weeks of the year to 31 July 2021, and is scheduled for Wednesday 4 August 2021.

Source : Next PLC

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