Skip to main content

Next Plc Sounds Note of Caution on Holiday Deliveries

Next Plc raised full-year sales and profit guidance based on current performance, but also warned of the risk of seasonal labor shortages during the important holiday selling season.

In a Nutshell: A strong half and in particular strong full-price sales for the the June and July period saw the company raise full-year sales guidance for the balance of the year to be up 10 percent when compared with the same pre-pandemic period in 2019.

CEO Lord Wolfson said the half saw a retail bounce-back when stores reopened in mid-April. But he also cautioned that “it is almost certain that underlying conditions are not as good as they currently appear.”

While pent-up demand for apparel, record savings ratios and far fewer overseas vacations have boosted sales in recent months, the impact of these factors is likely to diminish as time goes on, he said.

Sounding a note of caution, Wolfson said disruption to the supply chain means that inventory levels are lower than planned, or down 12 percent from two years ago.

“These stock levels are far from optimal and have noticeably affected sales in some categories and in stores. However, our recent over-performance would imply that the business as a whole has not materially suffered, perhaps because with so much choice available, it is easier to find alternatives on our website,” Wolfson said.

While he added that the situation is improving and expected to return to more normal levels in December, Next might have seasonal staffing issues in warehousing and logistics. “Without the contribution of overseas workers to assist with these peaks, we suspect customer deliveries may take longer to arrive as we go into the peak [holiday selling] season,” Wolfson said.

Related Stories

Next has raised its average selling price for the first half by 2 percent, mostly on larger home products and driven by inflationary pressures in shipping costs. The company expects another 2.5 percent increase in the first half of 2022, but expects that the rise in shipping costs will begin to ease moving into the back half of next year.

Next plans to close 13 mainline stores for the year, with three due to an inability to reach new lease terms with landlords.

Net Sales: Net sales for the first six months to July 31, 2021, for full price brand sales, rose 8.4 percent to 2.18 billion pounds ($2.94 billion) from the comparable 2019 period. Wolfson said brand full price sales were up 62 percent versus last year.

More important, full price sales in the last eight weeks were up 20 percent versus the same 2019 period. “This compares with our previous guidance for the second half of 6 percent,” he said.

Earnings: Profits were up 3.1 percent to 346.7 million pounds ($467.3 million) from 327.4 million pounds ($441.3 million) in 2019. The loss in 2020 was 16.5 million pounds ($22.2 million).

In addition to raising its full price sales guidance of 10 percent for the year and 12.4 percent for the second half, the company forecasted profit before taxes at 800 million pounds ($1.08 billion), or up 6.9 percent versus the same 2019 period. The previous guidance was 764 million pounds ($1.03 billion).

Next expects to open fewer stores, lowering its capital expenditures to 15 million pounds ($20.2 million) from 29 million pounds ($39.1 million) a year ago. The savings in capital expenses from its reduced retail space expansion plans will be offset by a rise in expenditures on technology to 36 million pounds ($48.5 million).

CEO’s Take: Wolfson cites two reasons for optimism: “firstly, the financial drag of our Retail business has diminished. Secondly, within the last two years the scale and breadth of our Online opportunities have materially increased.”

The company’s prospects for long-term growth include the development of its Next product ranges, an accelerated increase in its customer base, the growing success of Label, and the launch of its Total Platform logistics and infrastructure business.