Next Sales Decline 'Faster And Steeper Than Anticipated'

At a time of unprecedented uncertainty, we are using this trading statement to give shareholders a comprehensive, and much longer than normal, update on our trading and operational environment. We include a revised stress test of the Company’s sales, costs, cash flows and finances for the current year. The headlines are as follows:

Sales
The fall off in sales to date has been faster and steeper than anticipated in our March stress test and we are now modelling lower sales for both the first and second half of the year.

Costs
We believe that we can achieve higher cost savings and stock cancellations than we originally anticipated.

Cash
We have increased the Company’s cash resources through asset sales, and through suspending share buybacks and dividends.

Facilities
We have taken further steps to secure our debt finances by agreeing with our banks to
waive the financial covenants in our Revolving Credit Facility (RCF) for the coming year.
We have also secured additional borrowing facilities through the Government’s Covid
Corporate Financing Facility (CCFF) though, at this time, we think it is unlikely that we
will need to draw on these additional funds.

The conclusion is that we now believe that the finances of the Company are as secure as when we announced in March, if not more so. Much will depend on our ability to continue increasing the capacity of our Online operations within the constraints of new safe working practices and on the timing of store re-openings. Nonetheless we believe that, even in our worst scenario, with full year full price sales down -40%, the mitigation we have put in place means that: (1) the Company can operate comfortably within its cash resources and (2) we will end the year with less net financial debt than at the end of last year.

SALES TO DATE
The retail sector, along with the wider economy, has slowed faster and more steeply than we expected in March. 

Full price sales (VAT exclusive) 26th January to 25 April
Retail: - 52%
Online: - 32%
Product full price sales: - 41%
Finance interest income: +2%
Total full price sales including interest income: - 38%

ONLINE SALES TO DATE – CLOSURE, RE-ORGANISATION AND START UP

Closure and Re-organisation

On Thursday 26 March, we temporarily closed our UK warehouses and distribution networks in order to adapt our operations to working safely in a coronavirus world. During the 18 days of closure we re-organised all aspects of our warehousing to ensure social distancing and improved sanitation. We re-organised the flow of pedestrians, adapted exits, entrances, congregation areas, rest areas and workstations. In addition, we changed our picking routines and delivery promise to smooth workflow during the day and eliminated the peaks in activity most likely to result in close contact between operatives. A copy of our staff training video can be found on our website and gives a flavour of the extent and nature of the changes we have made (https://www.next.co.uk/our-employee-safety-video). We are now very confident that our colleagues in the warehouses can return to work safely, with social distancing and sanitation procedures in place and rigorously monitored.

Start Up
We re-opened our warehouse picking operation on Tuesday 14 April, the ramp-up of operations is necessarily slow; staff inductions need to be conducted in small numbers to ensure that colleagues are completely familiar with new ways of working. To limit volumes, we are only enabling customers to order the number of items that we can pick safely on any given day. At that point we then stop taking orders, switch to browse-only mode, and re-open the following morning. Given the initial capacity limitations, we first opened with only Childrenswear products available. Since then, we have steadily increased the products available for sale and we now offer around 70% of our ranges. As each day goes by, we have steadily increased the numbers of people working in our operations and the capacity at which we are able to operate. We hope to increase capacity to around 70% of normal levels within the next two weeks. 

RETAIL SALES TO DATE

We believe that the threat of a pandemic did not significantly affect retail sales until the beginning of March, we saw a material impact in the second week of March and declines accelerated as each day went by. In the three days before stores closed on Monday 23rd March, Retail sales were down -86%. In reality, the majority of our customers had decided to stop shopping in retail stores before the order came to close them. Plans for Re-opening We have plans in place for the re-purposing of our stores ready to re-open in a socially distanced world. Measures include screening of tills, distance marking walkways, sanitisation stations, exit and entry management systems and other measures.

We will prioritise the opening of our larger out-of-town stores first for the following reasons:

● We will be better able to adapt the layout of our large stores to ensure that social distancing measures are implemented effectively

● Out-of-town retail parks have large car parks, and outside space available to manage those waiting to get into stores

● Larger stores tend to trade longer hours reducing the numbers of people at any one time

● Large stores have larger and more senior management teams, and are thus better able to supervise social distancing and other safety measures

● Area and regional management teams will be better able to manage and monitor safety measures in a small number of large stores, than a large number of small stores. We anticipate that it will take some time for customers to return to their normal shopping habits and that sales will be very subdued when trade commences.

Click here for the full publication.

Source : Next PLC

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