Next sales beat forecasts but retailer warns of tougher months ahead

Next surpassed analyst expectations with a 17 per cent rise in third-quarter sales compared to 2019 pre-pandemic levels, the retailer said today.

Sales in the last five weeks were up 14 per cent on 2019 levels, versus forecasts of 10 per cent growth, but the retailer warned it does not expect to see the same momentum in the final quarter of 2021 as demand diminishes, inflation heats up and supply chain issues persist.

Next maintained its sales guidance at 10 per cent growth for the fourth quarter with full-year profit before tax at £800million.

Next beat expectations in Q3 despite weakness in its physical stores, but the retailer cautioned that its momentum will not persist in the next quarter

Sales growth was powered by a 40 per cent rise in online revenues in the third quarter, offsetting a 6.1 per cent dip in UK and Ireland retail sales.

In the year to 30 October, online sales are up 49.5 per cent while bricks and mortar retail revenues have plummeted 28.8 per cent on 2019 levels.

Should Next hit the £800million mark for pre-tax profits, this would represent a 6.9 per cent rise on the previous year and a 9.4 per cent increase in earnings per share to 516.9p.

Debt has also fallen by 45.2 per cent over the period to £610million.

Heading into the final quarter of 2021, Next said it does ‘not expect sales to continue at the level’ of the previous quarter, noting the ‘effects of pent-up demand’ post-pandemic are ‘likely to continue to diminish’.

It also highlighted ‘challenging’ conditions in stock availability with ‘delays in our international supply chain being compounded by labour shortages in the UK transport and warehousing networks’.

It added: ‘Although consumer finances are in good shape, price increases in essential goods (such as fuel) may moderate demand for more discretionary purchases.’

Next will update investors on its performance during the essential Christmas trading period on 6 January 2022.

Shares in next are down 2.6 per cent in morning trading to 8,098p, but remain up 17.1 per cent year-to-date.  

Freetrade analyst Gemma Boothroyd said it is essential Next holds onto its third-party brands sold online, which represent the ‘driving force behind its third quarter sales growth’.

She added: ‘Next’s own brand looks increasingly weak relative to the others it sells. And as its physical retail channel keeps floundering, the potential of a high-street comeback disappears even further in the distance.

‘Even though investors may not be too worried about digital being Next’s saving grace, they maybe should be.

‘The better Next does at selling the products its customers love, the messier things get. Next shoppers prefer its website to the store, but scattered warehouses render that a costlier supply chain to manage.

‘Transporting those goods is putting a dent in Next’s bottom line too, and there’s hardly enough labour to move those products to begin with.

‘So as Next gears up for the holiday season, it’s got a decision on its hands. Should it ease up on marketing pushes to let stock issues iron themselves out? Or should it push full steam ahead and kick the snarled supply chain can down the line? Investors would likely prefer the latter.’

This post first appeared on Dailymail.co.uk