First Christmas trading update: What did Next say?

Next Manchester

The first trading statement is out and I can hardly bear to look, especially as it’s a biggie. OK, so what has Next got to tell us about the holiday season? Here goes…

Company chief Lord Wolfson said that in the 60 days up to December 24, sales rose 0.4%. Hmmm, not brilliant. But there’s more. Next didn’t discount stock at any time before its End of Season Sale, so gross margins were maintained.  Stock for the End of Season Sale was -7% lower than last year and clearance rates are broadly in line with last year. That’s good, I suppose.

But… full price sales dipped 0.5% at Next Retail over the period, having grown 2.1% in the year to January 2, and at Next Directory they grew 2%, short of the 6.1% growth across the year. Sales from new space added 1.5% of turnover in the holiday season, compared to 1.6% across the year.

“Disappointing” is what Next called that performance. But at least it didn’t blame Black Friday. So what was responsible? “The disappointing performance in the fourth quarter was mainly down to the unusually warm weather in November and December.”

The company even gave us a graph showing the correlation between its sales performance and the year-on-year difference in temperature during the second half.  The blue line shows the difference between the temperature this year and last, the bars show the sales growth for the Next Brand.

Next temperature graph

Of course, Next is never one to make excuses and it also said that while warm weather may have been the main reason for difficult sales, it wouldn’t want “to allow difficult trading conditions to mask any mistakes and challenges faced by the business.”

So what did it own up to doing wrong?  “Specifically, we believe that Next Directory’s disappointing sales were compounded by poor stock availability from October onwards.  In addition, the online competitive environment is getting tougher as industry-wide service propositions catch up with the Next Directory.”

That’s an interesting one given that the Directory has been an online pioneer for many years – but it seems the rest of the industry is catching up.

Anyway, full price sales for the year to date are currently 3.7% ahead of last year, just below the bottom end of its previous guidance of 4% to 6%.  However, good control of margins, costs and stock, along with healthy clearance rates mean that it expects profits for the full year to remain within its guidance of £810m to £845m, issued in October.

Its revised central forecast for full year group profit is now £817m, though this might increase or decrease by £7m depending on trade in January.  £817m would represent an increase of 4.4% on last year.

And sales guidance? It’s currently budgeting for the Next Brand full price sales growth in the year to January 2017 to be up between 1% and 6%, which is a pretty big margin.  And it expect profits to grow in line with sales.

All of which suggests that the raft of updates that’s due in the next week or so could be bad. If Next doesn’t do well over Christmas and enter the New Year in an upbeat mood… who else can?

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