Next sees £25m fall in profits

Next's figures have suffered due to poor sales of autumn/winter clothing. Picture: PA
Next's figures have suffered due to poor sales of autumn/winter clothing. Picture: PA
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Britain’s Indian summer will knock £25 million off profits at Next after the sustained period of mild weather saw its sales ­performance melt.

The group yesterday warned turbulent trading conditions meant sales could fall over the key final quarter, which includes the crucial Christmas period.

Sales grew by 5.4 per cent in the third quarter to 25 October, compared to expectations of 10 per cent, following the mildautumn, with ­temperatures of up to 20C in some parts this week.

Next said it now expected full-year pre-tax profits to rise 11 per cent to £770m, down from the £795m previously flagged. Last month, it cautioned it would have to lower its earnings guidance for the year if the Indian summer continued.

Yesterday, it told investors: “In the event, October remained unseasonably warm and sales for the third quarter were up 5.4 per cent, which compares to our original expectation of +10 per cent.”

Quarterly sales in stores grew by just 2.4 per cent but the overall figure was boosted by online and catalogue sales through Next Directory, up 9.6 per cent. Better weather has hit demand for jumpers and coats.

“Whilst a cool August meant the season started well, this was more than offset by much weaker sales in September and October,” the group said.

It revealed sales fell year-on-year for three weeks in September and were almost flat for a couple of weeks in October.

Next added: “Given the volatility of current trading and the very strong fourth quarter performance last year, we have moderated our expectations for the fourth quarter this year.”

It now expects to record Q4 sales somewhere between a fall of 2 per cent and a rise of 4 per cent compared to the prior year.

The central forecast of 1 per cent growth is down from a previously expected 4 per cent.

Full-year total sales are now expected to be 6-8 per cent higher than last year, with Next having previously pencilled in a rise of 7-10 per cent. The group said its full-year debt was set to be in line with next year so it did not intend to pay any further special dividends this year, having returned more than £700m to shareholders.

Next, which overtook Marks & Spencer with a £695m profits haul earlier this year, had seen its strongest sales growth for years prior to the slower September. Cantor Fitzgerald analyst Freddie George, who kept his “buy” rating on Next, said: “Our view is the slippage is due to the mild weather, the underlying trend for consumption remains positive. It does appear, however, we are seeing more extreme weather.”

Retail expert Nick Bubb said the Q3 figures were not a big surprise but it was a “slight disappointment” Next was not confident about making the shortfall up in the fourth quarter.

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