Next cuts its profit forecast as sales continue to flag

Clothing retailer dealing with self-inflicted wounds and changing customer habits

Full-priced sales under the Next brand fell 3 per cent in the three months ended April 29th. Photograph: PA Wire

Full-priced sales under the Next brand fell 3 per cent in the three months ended April 29th. Photograph: PA Wire

 

Clothing retailer Next trimmed its profit forecast three months into its financial year, a sign that sales continue to flag ahead of an expected slowdown in consumer spending.

Full-year pretax profit will be between £680 million (€802 million) and £740 (€872 million), the Leicester-based company said on Thursday, reducing the top end of that range from £780 million (€919 million). Its shares fell as much as 6.1 per cent in London.

The latest cut to its forecast will deepen investor concern over prospects for a business that has long been regarded as one of the industry’s top performers. Chief executive Simon Wolfson is contending with a shift in spending away from clothing and toward leisure experiences, which has been exacerbated by the company’s own missteps. By focusing on trendy fashions, Next cut staples such as easy-to-wear work blouses too aggressively.

“Consumers’ disposable income is stagnant and at the same time there is a shift away from buying things into experiential spending,” Mr Wolfson said. “Those two things will continue to affect our sector.”

Home-shopping

Full-priced sales under the Next brand fell 3 per cent in the three months ended April 29th, compared with the median estimate of 11 analysts for a 2 per cent drop. A decline of 8.1 per cent in its stores was only partly offset by growth of 3.3 per cent in the directory home-shopping unit.

Mr Wolfson said he doesn’t expect omissions in Next’s fashion ranges to be fully fixed until September, and as a result second-quarter sales are likely to decline at a similar pace to the first quarter. Business should improve in the final two quarters of the year, he said.

“Continued underperformance against the market suggests the problems are more company-specific than we’d first thought,” said Richard Lim, chief executive of researcher Retail Economics.

“Conditions are only likely to weaken further in the coming months.”

– (Bloomberg)