Leicester-headquartered Next beat its expectations for the third time in its results for the six months to July.
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According to lead retail analyst at GlobalData, Emily Salter, Next had initially expected its full-price sales to decline by 3.0% and instead, they grew by 3.2%, as the group was helped by sunny weather in May and June “when sales rose by 7.5% and 10.0%.”
Equity research retail analyst at Shore Capital, Eleonora Dani attributed the rise in sales to a “robust online performance” which Next calls an “uncomfortable transition of sales from retail to online.”
Online sales grew by 4.1%, whilst retail sales show a “more modest” growth of 0.9%. Salter explains that Next has continued to make improvements to its already strong online presence including the addition of a new warehouse, Elmsall 3, that aided Next in fewer items being fulfilled from store stock and fewer items being delivered later than promised, boosting consumer satisfaction.
Next key H1 results:
- Net sales grew 5.4% to £2.6bn.
- Operating profit jumped 5.1% to £456.4m compared to £434.4m.
- Net profit increased 4.8% to £420m.
GlobalData predicts the total clothing & footwear market will grow 2.7% in 2023 “but Next’s sales are likely being pulled down by its home range, a market that is struggling in 2023,” adds Salter as consumers shift from big ticket items as a result of a pressured economy.
Next hints at inflationary pressures easing in the future: “In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line.”
Next detailed in the report that it is expected to make an “exceptional gain of £110m” from the Reiss acquisition where it took a further 34% stake in the luxury fashion brand in September. The brand forecasts its Earnings Per Share (EPS) before tax to be 723.9p, up 3.2%.
Salter notes that an area Next has labelled as a growth opportunity is its Total Platform which leverages its infrastructure by offering a complete suite of online services to third-party brands, providing services such as websites, marketing, warehousing, distribution networks and contact centres.
Salter said: “At the start of September, it increased its stake from 51% to 72% in Total Platform client Reiss, which seems to have flourished with its website operating through this platform – Reiss is more able to draw on Next’s retail prowess, and Next is reaping greater benefits from Reiss’ strongly growing position within the market.”
Outlook for 2024/25
The UK brand said it has begun the process of planning for the next financial year and as inflationary headwinds set to ease it appears that:
- Cost-of-goods price inflation is easing, and input prices look likely to stabilise next year.
- It anticipates that operating cost inflation will be less aggressive next year, with some of this year’s headwinds reversing. For example, the cost of electricity is set to fall by £12m and Elmsall 3 is likely to deliver net cost savings as its new automation ramps up.
- In addition, Next expects to make significant cost savings in Joules from the rollout of its Total Enterprise Platform
