Next credited a snap of cold weather for better than expected Christmas sales, in a rare note of optimism from the clothing chain whose falling profits and declining in-store sales have been seen as a harbinger of gloom on Britain’s high streets.
Full-price sales increased 1.5 per cent in the eight weeks before Christmas Eve, helped by store openings and brisk business on the company’s website.
That improvement, which compared with the company’s forecast of a small decline, allowed Next to pare back the amount of discounted stock in its Christmas sale, lifting the company’s profit forecast by 1 per cent, to £725m.
Next’s share price rose almost 7 per cent on Wednesday morning to £48.06. Rivals Marks and Spencer and Associated British Foods — the owner of Primark — were the second- and third-biggest risers on the FTSE 100 behind Next, climbing 3.3 per cent and 2.8 per cent respectively.
But Next’s better news did little to silence analysts’ concerns about the wider implications of retreat at a chain that has long been regarded as a bellwether of Britain’s high street.
Sales in Next’s physical stores are declining even as the company keeps opening new ones — although the 6.1 per cent reversal in the weeks before Christmas marked an improvement from the 7.7 per cent decline earlier in the year.
“People assume that if you’ve got stores you’ve got them forever,” chief executive Simon Wolfson told the Financial Times. “[But] we’re only taking stores for 10 years . . . You get your money back in two years. It’s still a good investment, even though you’re buying a declining asset.”
Rising wages and other operational costs meant that even if the recent positive sales trend continued, profits would be down slightly next year, the company said.
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However, Next expected an imminent end to the currency-driven cost increases that have forced retailers to raise their prices and deterred consumers from spending. Cost inflation would amount to just 2 per cent in the first half of next year, before disappearing entirely, it said.
“Next has managed its operations efficiently over the season with conservative buying,” said Tony Shiret, an analyst at Whitman Howard. “Tactical use of the Black Friday period [has reduced] its exposure to over-stock.”
However, Mr Shiret said Next would struggle to maintain its high margin model — which relies on limiting promotional pricing to short sale seasons, outside which garments are always sold at full price.
Next had warned that it was expecting a weak Christmas season after struggling with “extremely volatile” trading during much of the second half of 2017. Its improved performance will raise hopes that, after months of crimping their household budgets, British consumers spent more freely over Christmas.
Household consumption grew at the slowest annual rate for half a decade in the year to October, official figures show, as higher prices forced consumers to cut back or dip into savings.
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