Next has reported a rise in profits for the half to July despite a fall in like-for-likes due to an “unusually quiet” August and September. The City has issued a cautious response but has confidence in the retailer’s multi-channel strategy.
Next’s well established multichannel proposition put it on solid ground to capitalise on more people browsing its offer online than in its stores during the washout start of the summer. The strong growth of its Directory division underlines the importance of Next’s online and catalogue offer, which continues to be the group’s real growth driver
Looking ahead it is likely to be a slow start to autumn trading as the unseasonably warm end to summer has deferred spend on new coats and jackets as consumers soak up the last of the sun. The rest of the year is likely to be much more challenging as the reality of the underlying weakness of the economy undermines consumer confidence. However we believe that Next has put itself in a strong position to remain resilient in the tough retail environment following its investment in bolstering its multichannel offer, through more flexible fulfilment options such as next day delivery, and positive moves to improve the viability and profitability of its store portfolio. Conlumino lead analyst Simon Chinn
Next pioneered the multi-channel approach that its high street rivals once sneered at, but are now scrambling to copy. An approach that was once innovative is now beginning to look inspired. The company’s concern at falling sales in August and September reflects the fantastic summer we never had and the Olympics’ chilling effect on retail. Weaker sales in these two months may take the shine off the current period, but the company already has a strong Autumn / Winter stock package in place that should help it continue growth.” James McGregor, director of the retail consultancy Retail Remedy
Next has warned that August and early September trading has been disappointing with cumulative sales for the year now back to the middle of its guidance range. On outlook management has stated that “if the economy had a weather forecast the outlook would be overcast – patchy rain for the foreseeable” and in terms of its strategy, it reads a bit like a political manifesto, but it is more of the same as we expect from Next. It is a highly cash generative, tightly run company and looks to continue to execute on the basics of giving the consumer great product and capitalising on its leading multi-channel position. Seymour Piecer analyst Kate Calvert
We continue to see Next as one of the highest quality stories in our coverage universe, but as the second half comps get tougher, forecast upgrades seem less likely, and today’s warning of a disappointing August and September is early evidence that we may be right. Management says that current trading implies a mid-range outturn for full year pre-tax profits, which would imply around £597m. Panmure Gordon analysts Jean Roche and Philip Doran