Next Shares Slump 5.5% On Gloomy Outlook, Leads FTSE 100 Lower

Next’s share price tumbled in midweek trading thanks to a chilly reception to sales forecasts.

At £63.55 per share the FTSE 100 retailer was last trading 5.5% lower in Wednesday’s session.

In full-year results Next said that revenues were up 8.4% in the 12 months to January, at £5.1 billion. Full-price sales meanwhile increased 6.9% from financial 2022.

Online sales dipped 2% year on year to £3 billion. But this was offset by the 30% increase in store-generated revenues. These came in at £1.9 billion.

As a result the clothing giant’s pre-tax profits increased 5.7% year on year to £870.4 million. This was also £10 million higher than previous guidance.

But investors took fright as Next predicted full-year profit before tax will drop in the current fiscal year, to £795 million.

Sales And Profits Tipped To Fall

Next expects profits to drop on the back of reduced sales. For the 12 months to January it reckons full-price sales will reverse 1.5% year on year.

The FTSE firm said that “we are expecting performance in the first half of the year to be weaker than in the second half.” This is because of especially strong trading a year earlier that was caused by unusually warm weather and strong pent-up demand for summer events following the pandemic.

In better news Next scaled back its price inflation forecasts for the current year. It cut its estimates due to improving freight rates and lower factory gate prices as factory capacity rises and cost-cutting initiatives kick in.

The company now expects cost inflation to stand at 7% and 3% in the spring and summer, and autumn and winter, periods respectively. This is down from prior forecasts of 8% and 6%.

“A Good Year”

Michael Roney, chairman at Next, described the last 12-month period as “a good year” for the business, noting that “we have embraced the various challenges and seized the opportunies.”

Looking ahead, he said that “we have prepared (and budgeted) for a difficult year.” However, he added that mesures including product improvement, cost management, and further investment and acquisitions mean that the company “can lay the foundations for an exceptionally strong business and still deliver healthy profits, cash flow and dividends.”

3 Views From The City

Charlie Huggins, shares portfolio manager at Wealth Club, described last year’s results as “another solid performance from the bellwether of the UK High Street, reinforcing Next’s reputation as one of the best run UK retailers.”

He noted that “[while] the removal of pandemic restrictions has certainly helped… this shouldn’t take away from Next’s excellent operational execution.”

Huggins added that “with inflation starting to moderate, things are not looking as bad as they were a few months ago.” Though he also noted that “Next, and the rest of UK retail, are still facing a very difficult economy in 2023.”

Mark Crouch, analyst at investing firm eToro, said that “Next remains one of the stronger players in sector that has been rocked by external shock after external shock over the past few years.”

But he added that the retailer’s plans to get its earnings trajectory back to pre-2016 levels “will be difficult to achieve organically in the current environment.”

Speaking about this year’s forecasts, Russell Pointon, director of consumer at Edison Group, said that “the clothing brand has tended towards conservatism in its forward guidance and subsequently overdelivered.”

But he noted that “Next has suggested such outperformance might not be possible in the coming year.”