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Next Q2 sales beat expectations, outlook positive

By Michelle Russell | 29 July 2020

UK clothing and homeware retailer Next Plc has said it expects to finish the year in profit after it revealed a better than expected slump of 28% in full price sales for the second quarter.

In a trading update today (29 July), the retailer said for the three months ended 25 July, full-price sales were an improvement on the best-case scenario given in its April trading statement. As expected, sales of childrenswear, home, nightwear and sportswear, along with some adult casual clothing, performed better than more formal clothing ranges.

Retail sales, however, plunged 72%. Next started opening its fashion stores in the UK on 15 June and within two weeks 97% of its UK and Eire stores (by turnover) were open. Like-for-like retail sales since that date were down 32%.

Online sales, meanwhile, saw growth of 9% thanks to a gradual increase in picking and packing capacity at Next's warehouses. The company says it is introducing new 24-hour working shift patterns, along with greater support for warehouse activities in stores during peak sale periods, to improve capacity further.

During lockdown Next said its returns rate was significantly lower than last year as the product categories that have sold well, such as childrenswear, have much lower returns rates, and customers were unable to return items through stores so may have been more selective when placing orders.

Looking to the full year, Next has modelled three new scenarios based on full price sales being down 18%, 26% and 33%. The central scenario is in line with its internal forecast and assumes that sales in the second half are down 19%.

At its central scenario, Next is estimating full-year profit before tax will be GBP195m (US$253m), while year end net debt will fall by around GBP460m to GBP650m.

"The company is in a much better position than we anticipated three months ago: consumer demand has held up better than expected and our online warehouses have achieved much higher capacities than we thought possible," Next said in its update. "Costs have been well controlled, and we have taken steps to ensure that our balance sheet is secure.

"Whilst much of our time has been focussed on managing the business through the pandemic, we have not lost sight of the fact our sector was already experiencing far-reaching structural changes as consumers increase their expenditure online. If anything, these changes are likely to accelerate as a result of the crisis. So, we have continued to move the business forward, actively investing in the systems, online capacity and business ideas that we believe will be important in a post pandemic world."

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