Next defies Christmas fears with online sales boost but outlook remains cautious amid Brexit uncertainty
Next has opened the crucial post-Christmas trading update season by reducing its full-year profit expectations, but defied investor worries by increasing sales.
The retailer said full-price sales for the festive period were up 1.5 per cent between 28 October and 29 December, in line with its expectations.
Next reported a 14.9 per cent increase in online sales for the year to the end of December, defying concerns of disastrous Christmas trading for retailers.
But in-store sales were down seven per cent and Next reduced its full-year profit guidance from £727m to £723m.
The update shows the company has been more resilient to tough conditions on the high street than initially feared.
Next said strong sales in the run-up to Christmas, combined with good trading during October half-term, made up for disappointing sales in November.
The retail group said the £4m reduction in its full-year profit guidance was due to lower margins on beauty products and personalised gifts over the festive period and increased operational costs associated with its online sales.
Chief executive Simon Wolfson today said the UK consumer is “not in a bad place”, citing positive earnings growth and employment.
“Both of those numbers are good – we’re seeing real earnings growth and employment’s very strong,” he told Reuters.
But the Next boss remained cautious in his outlook for next year amid high levels of uncertainty around Brexit.
“I don’t think they are wiping spending out but they are definitely making people a little bit more cautious than they would have been,” Wolfson added.
The retailer expects sales growth of 1.7 per cent and a one per cent decline in profit next year, but admitted forecasting is difficult given the economic uncertainty.
“We have not factored into our sales estimates the potential benefits of a smooth transition or the downsides of a disorderly Brexit,” the company said.
Next saw its shares rise by as much as six per cent this morning following the announcement, though those gains have been trimmed back to stand three per cent up.
The retail optimism spread to other high street giants, as Marks & Spencer enjoyed a boost of almost two per cent to its share price. Shares in Primark owner Associated British Foods and department store chain Debenhams were also up this morning, after the latter saw its stock fall by nine per cent yesterday.
Next, which is the first major retailer to post its festive trading update, is considered a bellwether for the wider retail environment, and the buoyant attitude among investors shows the worst fears about a decline in retailing over the Christmas period are yet to materialise.
However, analysts remain cautious about the outlook for Next and other high street stores ahead of more updates in the coming weeks.
“Today’s update reopens the debate as to whether Next’s glass is half-full or half-empty,” said Richard Hunter, head of markets at Interactive Investor.
“There are certainly signs that the company is managing its affairs tightly, but with the outlook for the sector generally still mired in uncertainty, opinion remains divided and the market consensus of the shares as a hold is likely to remain in place for the time being.”
Freddy Khalastchi, business recovery partner at Menzies, said: “This trading update is proof that retailers, no matter how large or small, are entering an extremely challenging and unprecedented period; with falling footfall, heavier reliance on online sales and Brexit uncertainty chipping away at consumer confidence.”
Richard Lim, chief executive of market analyst Retail Economics, said the update highlights the disparity between online and in-store conditions for retailers amid shifting consumer behaviour.
“The ongoing shift towards online, fiercer competitor dynamics and softer consumer confidence have damaged in-store sales. This will likely set the tone for other retailers with a large physical footprint,” he added.