Next nudges up guidance as Directory sales drive weak first half volumes

In a trading update for the 26 weeks to 30 July, full price sales in the second quarter climbed 0.3% on a year ago after a 3.3% fall in retail sales, which was less than the market feared, while Next Directory added 5.7% and new space added 1.5% to brand sales during the quarter and the year to date.

Total sales, including markdown, were down 0.7% at Next Retail in the year to date and up 5.4% at Next Directory, for a total increase of 1.8%.

Next significantly shifted its guidance ranges for the full year to January 2017, with total full-price Next brand sales expected to move between -2.5% and 2.5%, rather than the previously flagged -3.5% to 3.5%.

Group profit before tax is anticipated at £775m to £845m, with it now expected to move between -5.6% and 2.9% on last year, with the new £810m mid-point some 1.3% higher than the previous mid-point.

Earnings per share are forecast to be between -2.5% and 6.3% compared to last year, with the new EPS growth mid-point of +1.9% some 2% higher than previously.

Next also commented on the effect of the EU referendum, with its board saying it would be “unwise to draw any firm conclusions of the effect the decision to leave the EU will have on UK consumer demand, particularly as the week after the referendum was an unusually strong week the previous year.

“So far, we can see no clear evidence of any appreciable effect on consumer behaviour, apart from the first few days after the vote.”

The company estimated that cost prices will rise by less than 5% in 2017-2018 as a result of the weakening of sterling, however.

It also said that it is prepared to expand its continental warehousing and fulfilment operation to serve its €200m business on mainland Europe should fulfilling those sales from the UK become less efficient.

The company, which expects to spend a further £30m on share buybacks during the financial year, is slated to announce its half year results on 15 September.

Analysts at broker Canaccord said: "Next remains a popular and relevant consumer brand within its core product areas, despite the gradual erosion of some of its previous competitive advantages within the Directory/e-commerce channel. It is well-managed, both from a trading and financial perspective, resulting in strong cash generation, with excess consistently returned to shareholders. This is the key underpin of the investment case currently, while trading is under pressure. In turn, this merits a discount to the wider sector."