The Next share price has added another 3.15% yesterday, taking to £81.14 as it continues to chart new heights. Regarded as the standard-bearer for a successful digital transformation among UK bricks-and-mortar fashion retailer, Next yesterday lifted its revenue and profits forecast. Investors were informed the company now expects profits to almost completely recover in 2021, despite continuing pandemic restrictions.
Next is now forecasting a 2021 profit of £700 million, up from £670 million. The hit to in-store shopping over the past year has been well-compensated by a 60% surge in online sales over the first eight weeks of the current financial year.
The upgrade to 2021 forecasts softened the blow of a halving of pre-tax profits for the company’s financial year to the end of January. They dropped from £729 million to £342 million, which was in line with forecasts. Investors will, however, consider the performance as impressive against a backdrop of an estimated £1 billion in sales lost last year as a result of store closures during periods of lockdown restrictions.
But an impressive pick-up in online sales, already a major strength of Next compared to bricks-and-mortar peers in the fashion retail sector, meant total sales for the year fell by just 17%. That equated to a £736 million drop to £3.63 billion.
Yesterday’s share price gain, markets are closed today for Good Friday, took Next’s market capitalisation to £10.8 billion – a record high. Investors are backing the company’s new online strength to combine with a rush of in-store sales as pandemic conditions recede over the next few months.
“If we had been told 12 months ago that our shops were going to be shut for 20 weeks, we could not have imagined the group delivering the sales or profit we achieved last year. We have been very fortunate. For a number of different reasons, our business was well placed to cope with the pandemic.”
Something of an exception amongst bricks-and-mortar fashion retailers, online sales were already accounting for half of Next’s revenues before the coronavirus crisis. While rivals were late to spot the threat from online-only competition from the likes of Asos and Boohoo, Next quickly pivoted to address to accelerating trend towards online shopping. It invested heavily in its e-commerce operations and is now reaping the rewards.
Just a decade ago Next barely had any online presence. This year, online sales and third-party partnerships, mainly with e-commerce fashion retailers the company has invested in, will bring in £1.3 billion – accounting for 28% of the group’s profits.