Next lowers trading forecast as sales slip 3.5% in third quarter

Clothing retailer Next has lowered its annual sales forecast, following a tough third quarter when the retailer struggled to sell full-price clothing.

The company said a bigger than usual end-of-season sale in July, as well as stronger trading a year earlier, had affected its performance in August and September.

Sales fell 3.5 per cent in the third quarter.

The results come as a report from the British Retail Consortium (BRC) said while Brexit has so far had no impact on shop prices, with deflation continuing, consumers can expect to see costs rising in the first quarter of next year.

“In September, we gave guidance that trading in the third quarter would be difficult,” Next said.

“In August, full-price sales were subdued following the much larger end-of-season sale in July and, in September, we traded against our best month last year. October sales improved significantly, as comparative weeks last year became less challenging.”

Next was one of the FTSE 100’s biggest risers in early trading, with shares up 2.2 per cent.

Lord Simon Wolfson, chief executive, had previously warned that the retailer had seen no post-Brexit referendum recovery in sales and that trading remained difficult.

Relief

Nick Bubb, an independent retail analyst, said there was relief that the trading update was not more gloomy.

He said: “Ahead of the much-awaited third quarter update from mighty Next, the City has grown nervous about what the company would say, despite the evidence of much improved October trading, on the back of colder weather.

“The issue is how bad August and September were and so it is some sort of relief that overall full-price sales were only 3.5 per cent down in the period.”

Next lowered its guidance for full-price sales in the year to January 2017 – predicting a drop of 1.75 per cent in the worst-case scenario and a 1.25 per cent increase in the best-case scenario.

The fashion retailer said it was now expecting a pre-tax profit of between £785 million and £825 million, compared with a previous range of between £775 million and £845 million.

Freddie George, an analyst at Cantor Fitzgerald, said: "The brand is, in our view, not broken even if it has lost its edginess against some of the mainstream competitors.

“It is being impacted by a more competitive and difficult market, which we had expected would have been more robust in the lead-up to Christmas.”

Inflationary pressures

On Wednesday, the BRC-Nielsen Shop Price Index showed overall shop prices were 1.7 per cent lower in October than the same time last year, almost unchanged from the 1.8 per cent recorded in September.

The report predicts shop price deflation will move closer to zero at the turn of the year and “could even move into inflationary territory” at some point during the first half of next year.

BRC chief executive Helen Dickinson said: "While we know that the devaluation of sterling since the Brexit vote is stoking inflationary pressures, the good news for consumers is that retailers have been successful in managing this to date and there is still no impact visible in shop prices.

“However, it is inevitable that imported inflation will begin to make its mark and we would expect to start to see this effect coming through in the first quarter of 2017.”

- Guardian, PA