Next says sales growth in Q3 2023 had been variable, which it attributed to changing weather conditions in the UK, but overall the retailer exceeded expectations in the three months ending 28 October.
After a warmer-than-average September in the UK, Next saw Q3 sales pick up in October when the country saw more typical autumn weather. The last two weeks of the quarter saw sales rise by 16% in the week commencing 15 October and by 11% in the week commencing 22 October.
Overall, this led to a 4% increase in full-price sales, which exceeded previous expectations of a 2% increase.
In a statement Next says: "We believe the volatility in sales performance is a result of changing weather conditions rather than any underlying changes in the consumer economy. In an autumn season cooler weather is good for sales, warmer than average weather depresses sales. Over time the average performance is a better indicator of underlying consumer demand than any one week.”
Key results from Next Plc Q3 2023
- Full price sales increased 4%, up from previous estimate of 2%
- FY24 guidance for profit before tax increased by £10m to £885m
- Online full-price sales increased 6.5% in Q3 2023.
Online results for Next were particularly strong with full-price sales online increasing 6.5% compared to last year. This was offset by a slight decrease in full-price sales in its stores, which fell slightly by 0.6%.
Next has increased its FY24 guidance on profit before tax to £885m, up from a predicted £875m, due to the better-than-expected sales in Q3.
GlobalData lead retail analyst Emily Salter says: “Clothing and footwear will have been the driving force of Next’s growth during the period, with home likely underperforming due to its more premium image and brand presence with consumers switching to retailers that represent better value for money such as Ikea and Dunelm.”
Key takeaways for the apparel sector
ShoreCap research analyst Eleonora Dani says Next’s Q3 2023 performance could reflect a positive trend in UK retail. She explains: “The positive numbers from the trading statement offer some insights into the wider UK retail sector. Online sales remain a strong growth driver, while the physical channel shows some softness against normalised comps. The focus on full price sales, as opposed to sales during clearance events, suggests a potential shift in consumer spending habits towards quality over quantity. Overall, the Q3 performance bodes well for both the company and the retail sector at large, at least in the short term."
GlobalData's Salter adds that, unlike purely online retailers in the UK, Next is not affected by the surging popularity of Shein.
She says: “In a huge contrast to Asos’ results whose FY2022/23 group revenue fell by 9.8%, Next’s online sales grew by 6.5%, as its omnichannel offer and wide brand range appeals to shoppers and it has not been affected by the rapid rise of Shein due to its older shopper base.”
In September, Just Style reported that Shein had achieved £1.2bn ($1.39bn) in UK sales for the 16 months leading up to 31 December 2022, making it the 14th largest apparel retailer in the UK during that period.
In the coming months, Salter says that Next will also benefit from recent acquisitions, including FatFace which it purchased in October 2023 and plans to retain its bricks-and-mortar stores.
She adds: “As long as the transition to Next’s Total Platform in the next 12 months is smooth, this is a move that should pay off for both players. Even though FatFace has a relatively high online penetration at 40%, Next has said that it will continue to operate and develop FatFace’s store portfolio, which is a wise move given its unique brand identity that can more easily be conveyed to shoppers in its stores.”
