Next share price down 4% despite profits upgrade on 20% Christmas sales growth

by Jonathan Adams
next plc

The Next share price has fallen by 3.8% today despite the fashion retailer increasing its profit forecast for the fifth time in ten months on the back of Christmas period sales that were up 20%. A festive party season that largely went ahead, or saw parties cancelled last minute when would-be attendees had already bought their outfits, helped full-price sales achieve 20% growth on the same period in pre-pandemic 2019.

Next, which also announced a special dividend of 160p-a-share, said it was raising its pre-tax profit guidance for the year by £22 million to £822 million. That would represent a near 10% improvement on the fashion retailer’s pre-pandemic profit figure. It’s also £122 million up from the original guidance issued for the year. The 20% rise in full price sales over the eight weeks to December 25 was achieved despite Next saying its delivery service for ecommerce orders had declined in quality due to a shortage of logistics workers such as warehouse staff and drivers.

next plc

Next’s strong ecommerce offering continues to impress with online sales up 45% over the fourth quarter compared to 2019. The company said growth was driven by an 85% leap in sales through its third-party designers business Label. The success of the ecommerce business compensated for a 5.4% drop in shop sales compared to 2019.

The strength of Next’s legacy mail order catalogue business gave it a major logistics infrastructure advantage over high street rivals which has allowed it to take a strong lead in the new online market. As well as its own-brand fashion items, the Next website also sells hundreds of third party brands.

Next also offered forward guidance for the year ahead, predicting a 7% rise and sales and 4.6% improvement in pre-tax profits to £860 million. If that’s achieved it would represent a record year for the company. However, chief executive Lord Wolfson of Aspley Guise cautioned that 2022 sales forecasts were a minefield due to the surprise “buoyancy of recent months” and also the assumption that Covid-19 disruption will no longer be a significant factor.

He highlighted five factors introducing uncertainty:

  • How sustainable pent-up demand fuelled by household savings over the pandemic will prove to be.
  • How much disposable income will be reallocated to travel and hospitality spending without pandemic restrictions.
  • How rising inflation and interest rates increasing on mortgages will impact discretionary spending.
  • How its own higher prices, necessitated by inflation, might dent sales.

Lord Wolfson expects the impact of these factors to be consumers buying

“slightly fewer items but at moderately higher price points, perhaps exchanging volume for quality”.

The uncertainty over 2022’s forward guidance is presumably behind today’s significant share price drop, despite Next beating analysts expectations for this year.



Important
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Related News

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Know more