A bleak festive trading report from Next sent shivers through the high street sector yesterday, as the fashion retailer cut profit forecasts and anticipated a threatening 2017.
Next’s shares plunged 14 per cent to 4,085p after group chief executive Lord Wolfson, a high-profile supporter of Brexit, said: “Not only do we face a continuing cyclical downturn but over and above that we’ve got price increases and a squeeze on real earnings.”
The simple problem is that Next is underperforming the marketNeil Wilson
Wolfson said given the challenging macro-economic context “I don’t think we’re being over-gloomy”. The downbeat statement reverberated among other leading retail stocks, with Marks & Spencer and Debenhams both sliding about 6 per cent, Primark-owning ABF 3.7 per cent lower and Burberry shedding 2.1 per cent.
Next, which was kick-starting the New Year retail updates season, said that full-priced sales at its stores fell 3.5 per cent in the two months to Christmas Eve, while Next Directory sales rose 5.1 per cent. This gave an overall fall in sales of 0.4 per cent.
The group cited “exceptional levels of uncertainty in the clothing sector”,” with Wolfson saying there was “little visibility of the approach the UK government will be taking to Brexit”.
He added: “It will take time for them and we have to be patient, but there will be uncertainty in the meantime.”
Next cut its guidance for pre-tax profit to £792 million for the year to January 2017, down from the £805m it had previously forecast and the £821m it made in its 2015-16 financial year.
For 2017-18 the retailer forecast a profit range of £680m to £780m, below the City’s consensus forecast of £784m. Wolfson said last year that the fall in the value of the pound after the Brexit vote made it likely the company would raise prices by up to 5 per cent this year. Wolfson said: “I said 2016 would feel like we were walking up the down escalator; well, the escalator has just got faster.”
The Next boss has also said that consumers are spending less on clothing and more on holidays, eating out and other leisure activities. But some industry analysts say the company has its own specific problems.
“The simple problem is that Next is underperforming the market,” Neil Wilson, a market analyst at ETX Capital, said. “UK retail sales have held up in the months following the Brexit vote but Next has suffered.
“It has been suffering for a while and needs a turnaround plan. The brand is struggling for relevance and risks going the way of Marks & Spencer on the clothing front, appealing to an ever-narrower customer base.”
Richard Lim of retail consultancy Retail Economics called the Next performance “miserable”. He said: “These latest figures confirm that underlying conditions on the high street remain desperate for clothing and footwear retailers.”