British retailer Next raises profit forecast on lockdown exit optimism

Fashion chain's sales soar after stores were able to reopen in April

A woman walks past e a branch of clothing retailer Next in London, Britain. The company trades from about 500 physical stores in the UK, as well as online, with a heavy international presence, including 14 UAE branches franchised by the Alshaya Group. ReutersShow less

British fashion retailer Next upgraded its full-year profit forecast for the second time in two months on Thursday, after sales soared when stores were allowed to reopen in April following the latest lockdown.

Sales in the past three weeks were significantly higher than in the same period last year, with pre-tax profit in the 2021-2022 fiscal year now expected to be £720 million ($1 billion), up from the company's £700m April forecast.

Simon Wolfson, chief executive of Next, said the recent relaxation of Covid-19 restrictions – which saw non-essential stores in England reopen on April 12 – felt different to the past, making him feel more optimistic about the company’s future.

"The relief from this lockdown feels more optimistic. It feels like this might genuinely be the end of it," Mr Wolfson said. "So to that extent the rally may last a little bit longer".

Next trades from about 500 physical stores in the UK, as well as online, and the brand also has an international presence, with its 14 UAE branches franchised by the Alshaya Group.

Next's total full-price sales in the last three weeks were up 19 per cent, reflecting the recent easing of pandemic restrictions.

However, first-quarter sales from physical stores were down 76 per cent on two years ago, largely due to the lockdowns, while online sales rose 65 per cent.

Meanwhile, sales at Label, the company’s marketplace for third-party brands, increased 71 per cent, and Next’s overseas sales, which make up an increasingly large share of the group, rose 67 per cent.

While full-price sales in the 13 weeks to May 1 fell 0.6 per cent compared with the same period two years earlier, before the pandemic started, it was a much smaller decline than the 10 per cent drop expected by Next. The retailer said sales beat its forecast by £75m.

However, Next said it expects the recent surge to be short-lived based on evidence from last year’s emergence from restrictions.

“We expect sales to settle back down to our guidance levels within the next few weeks,” it said.

Looking ahead, the company expects full-year sales to be up 3 per cent from 2019.

Adam Vettese, analyst at multi-asset investment platform eToro, said the company’s first-quarter trading update is perhaps the strongest since the start of the pandemic.

“Total sales in the 13 weeks to May 6 are above 2019 levels (the pre-Covid period it is using for comparison) helped in part by the reopening of the High Street," Mr Vettese said.

“The added impetus of sales from physical stores has helped considerably, but it’s Next’s online division which warrants most praise. It has delivered throughout the crisis, helping the retailer to survive perhaps the most turbulent period in retail history.”

Shares in Next were up 2.81 per cent at 9.14am on Thursday, helping to boost the FTSE-100 even further after it clocked its best day in over two months on Wednesday, supported by gains in heavyweight mining and banking stocks on recovery optimism.

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