Next raises profit forecast again as sales beat expectations

UK fashion chain Next has upgraded its full-year profit forecast for the third time this year after sales grew more than expected in the third quarter.

The group said it now expected pre-tax profit to be about £365m, up from the £300m forecast at the time of its half-year results in September and ahead of the current £347m average of analysts’ estimates calculated by Capital IQ.

The forecast is still less than half the £750m of profit Next made in its last financial year, but well above its gloomy forecasts at the peak of the pandemic. In April, the company’s most optimistic scenario had sales falling 30 per cent; it is now budgeting for a 17 per cent decline over the full year.

Product sales in the third quarter were up 4.8 per cent, with a 23 per cent rise in online sales more than offsetting an 18 per cent contraction in stores. Even before the pandemic, Next made the majority of its sales online.

Finance income at the company’s credit operation fell, reflecting an industry-wide trend for customers to pay off credit balances rather than add to them.

Next’s projections for the fourth quarter remain conservative: its central scenario anticipates sales falling 8 per cent, and even its most optimistic scenario has them flat.

The group has factored in local lockdowns reducing customer numbers in stores, increasing levels of staff absence in its distribution centres because of self-isolation and some degree of shopper wariness as stores become more crowded in the run-up to Christmas.

“The biggest single unknown is whether England, Scotland and Northern Ireland will follow Wales’s decision to shut non-essential retail shops,” the group said in a statement, adding that a two-week lockdown in November in all three countries would reduce full-price sales by £57m.

Next, whose chief executive Simon Wolfson has been a prominent supporter of Brexit said that if the UK did not secure a trade agreement with the EU the government’s revised tariff schedule would add about £13m to costs — as opposed to a £25m reduction that would have resulted from the tariff plan proposed by the previous government under Theresa May.

However, it added that a no-deal Brexit was “not Next’s preferred outcome” and called on the government to provide more clarity on the administrative process for sending goods from Britain to Northern Ireland.