High street giant Next has stated that its full-price sales in the 54 days to 24 December were down 0.4% on the prior year. While this was a significant improvement on the third quarter (when full-price sales were down 3.5%), the retailer said it had been expecting sales to be up year-on-year due to weak comparative numbers.
Total sales for the year to date, including mark-downs, are up 0.4% on 2015 while full-price sales for the year-to-date are down 1.1%. Stores were hardest hit by the spending slow-down with retail sales down 3.5% in the 54 days to 24 December and 4.3% in the year to date. Next Directory sales, however, were up 5.1% in the 54-day period and up 3.6% in the year to date.
Despite a difficult season, Next stood it ground and didn’t engage in additional discounting pre-Christmas and therefore stock for its end-of-season sale was “well controlled and down 3% on last year”.
However, sales in the end-of-season sale are down 7% on last year with the cost of the lower clearance rates “in the order of £3m”. As such Next has revised central guidance for full year group profit to £792m, which may increase or decrease by £7m depending on trade in January.
In its statement the bellwether retailer noted that the sales slowdown had gone beyond the anniversary of its start (in November 2015) and therefore it expected it to continue into net year. Two additional factors will affect sales, it said, including the squeeze on general spending as inflation erodes real earnings growth and increased prices due to the decline in the value of sterling following the Brexit vote.
Taking these factors into account it is projecting a full year sales growth to the end of January 2018 of between 4.5% and +1.5%. The mid-point of -1.5% would be “marginally worse” than the current year‘s performance. On the plus side international sales would be boosted by the weak pound leading to an anticipated 1% rise in full-price sales, it said.
In the coming year the retailer faces further cost pressures including the National Living Wage, the national business rates revaluation, Apprenticeship Levy and energy taxes, which will add around £13m to its cost base. General inflation in wages and other non-product costs look set to increase by an additional £6m, while it also intends to invest around £10m in online marketing and its website.
However the business remains strongly cash generative with a robust balance sheet and “well placed to weather a downturn in consumer demand”, it said.
