Next has beaten its own sales expectations, an achievement which the retailer attributes to a better summer combined with a range of improvements. Although Next has fared well so far this year, the outlook remains challenging and it must maintain this momentum into the second half.
Next brought its trading statement forward by one week due to better than expected trading, reporting a robust set of half year results. For the 25 weeks to July 18, 2009, total brand, retail and Directory sales were reported as being up 1.3%, 1.4% and 1.1%, respectively. Like-for-like retail sales were down 1.9%, but were above the guidance set in its interim management statement, where like-for-like retail sales were expected to be down between 4% and 7%, alongside broadly flat growth in Directory sales.
Although Next customers will be some of the worst impacted by the economic downturn (they are mainly at family rearing age and therefore have significant financial commitments), the retailer's results highlight that people are still willing to spend, should they need or want to. Indeed, Next attributes its stronger than expected trading to a far better summer than last year. After two poor summers, the warmer weather has forced consumers to spend on seasonal garments. This, Next estimates, has boosted retail sales by between 2% and 3%. It also attributes its growth to the design and fashion content of its ranges across all product areas. In turn, its summer sales began with 19% less stock than last year, with initial clearance trading reported as encouraging.
Given its stronger than expected performance, the retailer has increased its profit forecast for the first half by GBP15m. Moreover, bought in margin is also forecast to surpass expectations in the second half due to better than planned negotiations and sourcing. That said, Next is rightly staying cautious about the remainder of its financial year, expecting consumers to continue being careful with their spending. Without the benefit of a strong summer, the retailer expects its second half performance to be significantly below that of the first, forecasting like-for-likes of between -3.5% and -6.5%.
The tough economic climate will continue to prove challenging for Next. Nevertheless, its reaction so far has been positive. Tightly managing its stock, improving the design content of its ranges and cautiously planning for difficult times have helped to drive better than expected sales. However, the second half of the year will prove crucial for the retailer and it is essential that the company remains focused on maintaining this cautious approach into the rest of the year in order to protect profits.
Source: Verdict Research