Next is strong despite lockdown sales falls, online and beauty power ahead
Next delivered a well-received set of half-year results on Thursday and as well as demonstrating its relative strength during the pandemic, they highlighted some very encouraging current trading.
Its first half (the six months to July) included an unprecedented few months in which all of its stores were shut while the period since then has been characterised by cautious consumers not waiting to venture into stores. But Next seems to be among the winners from the pandemic with its business still in good shape.
That said, there’s no denying that the half was a brutal one in which both sales and profits fell. Just look at the numbers: pre-tax profit dropped to £9 million from £320 million a year ago and net profit dropped to £15 million from £261 million (excluding IFRS16 in order to make meaningful comparisons). Meanwhile, full-price sales fell 33% year-on-year while total group sales dropped 34% to almost £1.357 billion. Within that, both of its two biggest business units saw falls. Online sales fell 14% to £862.6 million and retail store sales plunged 61% to £344.6 million.
The firm was fortunate that its online sales accounted for more than half of turnover going into the pandemic, so it had the scale online to make up for some of the business it lost (and continues to lose) from its stores.
It also saw fewer returns during the pandemic, although sales of clothing for work, weddings, going out and warm weather holidays were significantly down on last year. In some weeks, areas such as men's and women's suits, occasion dresses, formal shoes and party clothes were as much as 80% down. By contrast, childrenswear, sportswear, loungewear, underwear and home products performed much better, particularly online where, in some areas, it experienced “significant” growth.
But it’s not so much what happened in the first half as what’s happening now that counts. The company said full-price sales in the last seven weeks are up 4% on last year, “a strong start, driven by recent cool weather and fewer overseas holidays”.
Interestingly, it added that sales online, which held up fairly well in the first half, “have been significantly stronger since our stores reopened than they were before the pandemic struck. It appears that some lockdown habits have stuck, and we have been able to take advantage of this shift to online”.
The sales performance of its stores, although down on the year, has steadily improved since reopening. However there has been a marked difference in the performance of different types of store.
City centres have been slow but retail parks have performed well and smaller towns have also generally performed better than larger cities.
What does that mean for the full year? The firm’s guidance is for full-price sales for the rest of the year to be down 12%, although that’s a brilliant projection compared to the devastating sales falls many of its rivals still expect to see.
It also predicts pre-tax profit of £300 million, which is much better than the £195 million “central scenario” it had given in July's Trading Statement.
The results statement contained some key messages from the firm, the first being that “sales performance through the pandemic has been more resilient than we expected”.
It also highlighted its financial stability, its adaptation to new ways of working and opportunities for new business development. On this front, it said that “the pandemic has created a more fluid environment in which opportunities are likely to emerge at speed”. And its expansion into former Debenhams locations with its new premium beauty concept, as well as it purchase of a majority stake in Victoria’s Secret’s UK and Ireland ops, underline this point.
It said that while the latter deal is still subject to regulatory approval, its plan is to operate around 18 standalone Victoria's Secret stores, to sell some ranges via concessions in selected Next stores, to run the UK and Ireland webstore and to sell the Victoria’s Secret brands through its Label operation on the Next webstore.
Meanwhile, in Branded Beauty, the company added 43 brands in H1, including Tom Ford, Versace and Liz Earle. It expects to add more key brands as the year progresses, including YSL, Bobbi Brown, Urban Decay, Giorgio Armani Beauty, Too Faced, Lancôme, Kiehl's, Mugler and Viktor & Rolf.
Its online Branded Beauty business grew in the first half by 19%, and in the last 13 weeks has seen 60% growth, with this percentage expected to continue. On its Beauty Halls trial, it expects to open in Watford, Milton Keynes and Gateshead Metro Centre during October with Reading opening before Christmas.
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