Freddie George Comments: Retailer Next on track to beat forecast

January 5, 2014, The Courier Mail

Shares in Next pushed ahead yesterday after the retailer revealed a rise in full-price sales in the run-up to Christmas.

The 2.9% increase for the period from October 28 to December 24 means the high street bellwether is on track to outperform its forecast of 1% growth for the quarter to January.

The positive nature of the update, in which Next also announced a 50p special dividend for shareholders, boosted the firm’s share price by more than 3%.

Next’s announcement was the first significant set of retail figures since Christmas.

It revealed that while sales from its stores were ahead by only 0.5%, overall trading was lifted by a strong performance from its online and catalogue-based Directory division, where sales were up 7.5%.

Despite concerns heavy discounting would be necessary to shift stock, Next now expects full-year profits to be 
£775 million — around £5m higher than when it warned on earnings in the autumn.

Week-by-week figures showed full-price sales struggled in November but picked up in the run-up to Christmas and were ahead by £20m in the final week, though the figure was flattered by the retailer having an extra day’s trading compared to last year.

The group said it now expects sales growth for 2015/16 of between 2.5% and 7.5%, compared to latest expectations for 2014/15 of 6-8%.

Next said the outlook for UK consumers appeared “relatively benign”, but it remained cautious with its own trading forecasts and said the looming general election created uncertainty.

“Low inflation, an end to real wage decline, healthy credit markets and strong employment all paint a somewhat more positive picture than recent years,” the company told investors yesterday.

“However, we remain very cautions in our sales budgets for the year ahead.

“In spring and summer the company will face very tough comparative numbers. As we pointed out in our September interim announcement, during the first half of 2014 sales were significantly assisted by unusually warm weather.

“There is potential upside in the second half as our sales comparisons weaken, although uncertainty in the UK political outlook and turbulence in the international economy present potential downside risks.

“We are currently budgeting for full-price sales growth in 2015/16 to be between 2.5% and 7.5%, with the first half expected to perform at the lower end of the range.

“Profits are expected to grow in line with sales.”

Cantor Fitzgerald analyst Freddie George said there was “relief all around that the trading update was better than expected both in retail and the Directory”.

Retail analyst Nick Bubb said Next had allayed fears of a pre-Christmas “discounting frenzy” to deliver solid sales growth.

Shares in Next closed the day up 210p at 6,725p.