3rd Aug 2023 10:34
(Alliance News) - AJ Bell's Laith Khalaf on Thursday said Next PLC seems to be "keeping its head above water in a difficult environment" after the retailer raised its full-year profit guidance amid a solid full-price sales performance in the first half of its financial year.
"A washout July could have been catastrophic for retailers and so there was a sense of nervousness ahead of Next's summer trading update. While the rate of its sales growth slowed dramatically in the six weeks to 29 July versus the previous seven weeks, Next seems to have avoided a downpour and still managed to shift quite a bit of stock in the period," said Khalaf, head of investment analysis at AJ Bell.
The Leicester-based clothing and homewares retailer said full-price sales in the second quarter ended July 29 were up 6.9% on last year, with online sales up 10.0% against the year prior and retail sales up 2.2%.
Full-price sales growth in the six weeks ended July 29 slowed to 3.4% from 9.5% in the seven weeks to June 17.
Next noted that its end-of-season sale had gone well, with clearance rates ahead of expectations and adding around GBP4 million to the company's pretax profit.
AJ Bell's Khalaf said it was "no surprise" that the end-of-season sale had gone well for Next as consumers hunt for bargains amid the cost-of-living crisis. What was interesting to Khalaf was that full-price sales were also thriving, suggesting that consumers are "still happy to pay up for goods if it feels like they are getting good value for money".
As a result of this solid performance, Next raised its full-year pretax profit guidance to GBP845 million. This would be down 2.9% on the year prior, which ended January 28, but 1.2% higher than guidance of GBP835 million posted in June.
Full-price sales are expected at GBP4.68 billion for the year. This would be up 1.8% on the year prior and is also up a touch from June's guidance of GPB4.67 billion.
Richard Hunter, head of markets at interactive investor, said the improved outlook is based on the improved clearance rates of the recent sale, as well as an additional GBP16 million of full-price sales over the last six weeks.
"This is further evidence of a notable change since the pandemic, where the contribution of full-price sales, as opposed to the prevalent discounting which had previously been in force, has had a material impact. At the same time, the return to City centre shopping is also in evidence, whereas previously it was the out of town retail parks which were experiencing most visits," Hunter added.
Charlie Huggins, manager of the 'Quality Shares Portfolio' at Wealth Club, said the guidance appears "cautious" and reflective of a "degree of conservatism" from Next.
"It also likely reflects the recent rapid increase in interest rates which could be set to bite harder in the second half, sapping consumer confidence," he added.
For Huggins, the big question was how much longer this "excellent" performance from Next can last.
"So far, 2023 has not been anywhere near as bad as expected for the UK consumer, and this has benefitted Next and its peers. The big question is - how much longer can this last? Recent signs that inflation is moderating offers hope for the economy, but the longer interest rates stay above 5% the greater the likely squeeze on disposable incomes," he cautioned.
Shares in Next were up 0.2% at 6,866.00 pence on Thursday morning in London.
Next plans to publish its half-year results on September 21.
By Heather Rydings, Alliance News senior economics reporter
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