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Online sales nearly counter store losses at Next

Next has reported on Christmas trading, covering the nine weeks to 26th December 2020.

Headlines:

  • Full price sales in the nine weeks to 26 December were down -1.1% on last year and much better than our central guidance of -8%, given in our October Trading Statement.
  • After accounting for the benefit of better sales in November and December and anticipated losses from store closures in January, full year profit before tax is forecast to be £370m before two additional non-recurring items.
  • A non-recurring profit of +£12m from a 53rd week, along with an additional property provision of -£40m, mean that total full year profit before tax is forecast to be £342m.
  • Year end net debt is forecast to reduce by £487m to £625m.
  • For the year ahead (2021/22) our central guidance, which assumes our Retail stores will be closed in February and March, is for profit before tax of £670m, based on full price sales being flat versus two years ago (i.e. 2019/20).

Full Price Sales To 26th December:

In the nine weeks to 26 December, the sales gained in our Online business compensated for almost all those lost in Retail stores, with total product full price sales down just -0.5%. The table below sets out the full price sales performance by business channel versus last year for the fourth quarter, second half and year to 26 December.

Full price sales (VAT exclusive)

Fourth quarter  

to 26 December

Second half to 26 December

Year to

26 December

Online UK

+36%

+30%

+9%

Online Overseas

+43%

+31%

+13%

Online total

+38%

+30%

+10%

Retail

– 43%

– 30%

– 46%

Product full price sales

– 0.5%

+1.8%

– 16.5%

Finance interest income

– 13%

– 13%

– 8%

Total full price sales including interest income

– 1.1%

+0.9%

– 15.9%

Product and Sales Trends:

The effect of the pandemic on the shape of our business in the fourth quarter was very similar to the effect during the rest of the year.  The paragraphs below set out the main points.

Products that did well: Childrenswear, Home, Loungewear and Sportswear.

Products that did badly: Adult clothing for work, parties, events and going out.

Returns rates: Returns rates continued to be much lower than last year (21% compared to 36% last year).  Of the 15% movement, 10% came from the change in product mix (i.e. the categories that did well have lower returns rates than those that did badly).  The remaining 5% fall came from customers being more selective when placing their initial order.

Retail Parks versus other stores: Stores located in out of town Retail Parks continued to perform around 15% better than those in city centres and shopping centres.

End of Season Sale:

Stock was well managed and surplus stock going into our end-of-season Sale was down -12% on last year. We expect clearance rates to be down -4.8%, in line with the guidance we gave in October, which anticipated lower footfall in our Retail Sale. The closure of around 50% (by sales value) of our Retail stores limited our capacity to clear Sale stock in our traditional Boxing Day Retail Sale. To mitigate these closures, we significantly increased the amount of Retail Sale stock available to order in our Online Sale. We now estimate that we will clear around 25% of our Retail Sale stock through Online sales. However, the cost of clearing stock will be £5m higher than anticipated as the marginal cost of clearing stock Online is higher than in Retail stores.

Brexit:

We have not experienced any disruption as a result of Brexit and all our new systems required for Brexit have been implemented and are now operational.  We do not anticipate that Brexit will have a material impact on our ability to import and export stock in the year ahead.

Following the announcement of the free trade deal between the UK and EU, we do not anticipate any increase in customs duty costs in the year ahead.

Outlook For Sales & Profit In The Year Ahead:

The continued uncertainty caused by the COVID pandemic, and its potential economic impact, mean that it is harder than ever to predict sales and profits for the year ahead. So the guidance ranges we are giving for the coming year are wider than usual, but at least give shareholders an understanding of how the profits of the business would respond to different levels of sales growth. In addition to the closure of shops, the pandemic has adversely affected the flow of container traffic from the Far East. At present many of our deliveries are running two to three weeks late and we expect this level of disruption to continue into the new year. Our stock levels are currently down -10% versus two years ago (January 2019). We expect stock levels to steadily improve and return to more normal levels by the end of March.

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Source : Insight DIY & Next PLC


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