Next makes small upgrade to full-year profit expectations but store closures bite

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Next PLC (LON:NXT) has made a small upgrade to the expectations for profit before tax for the year to January 2021, though it will remain much lower than last year despite Christmas trading that had been defensive, as the new coronavirus (COVID-19) national lockdown takes its toll.


After accounting for the benefit of better sales in November and December and anticipated losses from store closures in January, the FTSE 100 retailer said the profit figure is expected to come in at GBP370mln, down from GBP728mln in the year to January 2020.


READ: Next upgrades profit forecasts as third quarter sales come in better than expected


However, it’s still a small upgrade from the GBP365mln expectations set in October.


The retailer noted that profit gained from the overperformance in November and December has been almost entirely offset by the anticipated loss of upcoming January closures and the additional costs of clearing stock online.


Full-year full price sales are expected to drop by 16% compared to a year ago.


Next said the financial year ending 2022 could deliver a profit before tax of GBP670mln if full price sales are flat compared to the year to January 2020, even if retail stores are assumed to close in February and March as well.


In addition to the closure of shops, the coronavirus pandemic has adversely affected the flow of container traffic from the Far East, with current deliveries running two to three weeks late and disruption expected to continue in the new year, the group said.


Christmas trading


In the nine weeks to December 26, 2020, Next’s full-price sales dipped by only 1% after online sales compensated for the losses of store closures.


As seen throughout the pandemic, childrenswear, home, loungewear and sportswear were more in demand than adult clothing for work, parties, events and going out, while returns rates were better than last year.


The closure of half of the firm’s retail stores limited capacity to clear sale stock on the traditional Boxing Day sale, so it was moved to the online platform.


Next expects to clear 25% of the retail stock online, however, it will come at an extra GBP5mln charge because the marginal cost is higher.


Continuing “with aplomb”


Richard Hunter, Head of Markets at interactive investor, said Next continues to “navigate a difficult time with aplomb” although online growth is offset by “another blow to its retail business”.


“If it is possible for there to be any benefit from a third lockdown for retailers, it is that they have a grasp of what to expect having become unwillingly experienced from the previous ones,” he noted.


“The shares have added 104% since the April low, with the main drag being the market consensus of the stock. It has been a ‘hold’ for some considerable time given lofty expectations and despite Next’s best efforts, it is likely to remain in place for the time being.”


Next shares jumped 8% higher to 7,498p on Tuesday morning.


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