Fashion chain Next beats summer sales expectations

High-street stalwart Next has revealed better-than-expected sales over the summer, with strong trading in children's clothing and homeware products, although there was a fall in formal and party clothes due to the pandemic.

Demand for men's and women's formal and occasion clothing remains weak, the retailer said. Picture: Next.

Bosses said total sales in the three months to October 24 rose 1.4 per cent – or 2.8 per cent when interest from consumer credit is included. The company said it now expects pre-tax profits for the year to hit £365 million – £65m more than first expected – with net debt forecast to fall by £487m to £625m.

Next said: "The sales performance by product category remains very similar to the second quarter, with home and childrenswear over-performing while demand for men's and women's formal and occasion clothing remains weak. Online sales remain strong, both in the UK and overseas. In retail, out-of-town retail parks continue to perform better than high streets and shopping centres."

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The number of products sold with a markdown fell 12.3 per cent against a year ago, although Next explained that this was due to fewer customers in stores and a focus in its warehouses on full-priced goods. Sales outperformed particularly strongly in the final two weeks of August, as the government was encouraging workers back to offices and before the Rule of Six was introduced.

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They fell sharply in September, but regained momentum in October and beat sales from a year earlier. Online sales remain strong, jumping 23.1 per cent in the three months to October 24, although store sales continued to be weak – down 17.9 per cent during the period.

Laying out three scenarios for the all-important Christmas trading period, bosses said sales could fall 8 per cent based on their "central scenario," which includes further lockdowns, customers avoiding busy stores in the run-up to Christmas, and increased self-isolation.

An "upside" scenario predicts a flat period of sales, compared with last year, where "busier stores prove no further deterrent to retail shopping," and no further lockdowns. The "downside" one would see a two-week lockdown, with sales falling 20 per cent.

Next added: "The biggest single unknown is whether England, Scotland and Northern Ireland will follow Wales's decision to shut non-essential retail shops. A two-week lockdown in England, Scotland and Northern Ireland in November would reduce retail full-price sales by around £57m (depending on timing).

No evidence

"We have found no evidence of the virus being transmitted in our stores, nor are we aware of any studies that suggest clothing and homeware retail presents a significant risk of infection."

Arlene Ewing, investment manager at Brewin Dolphin, said: “Despite all the challenges the crisis has presented, Next has increased its central profit guidance, sales are slightly up on the same period last year, premier labels continue to be added to its online platform, and the retailer expects to pay down a significant share of its debt.

"The key questions remain how Covid-19 and Brexit will affect Christmas trading. Next appears to be relatively sanguine on the latter, while a good proportion of consumers reportedly sitting on cash saved through lockdown could help boost sales in the final two months of 2020. Next was successfully adapting to the structural changes in retail prior to Covid-19 and the company looks to be in an even better position now relative to many of its peers.”

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