Next Offers Christmas Retail Cheer as Investors Seek Relief

(Bloomberg) -- Next Plc shares rose after surprisingly robust Christmas retail figures cheered investors who were fearing the worst after months of gloom in the sector.

Strong sales in the weeks before the holiday helped make up for disappointing results in November, the U.K. clothing retailer said Thursday, a result that was better than some analysts anticipated. At the same time, the company trimmed its estimate for 2019 profit.

Retailers were on edge through the end of last year after online-only Asos Plc cut its sales forecast, and many in the U.K. discounted heavily ahead of Christmas. At the end of 2018, Next shares had lost about a third of their value after peaking in June, and its holiday performance may signal a reprieve for others in the sector -- Marks & Spencer Group Plc and Debenhams Plc -- that report later this month.

The shares gained as much as 7.1 percent in London, the most intraday since Sept. 25. Liberum analyst Wayne Brown upgraded the stock to buy from hold. Other retailers also rose, including Marks & Spencer, Debenhams and Sports Direct International Plc.

Next reported a 1 percent gain in Christmas sales, though it extended the reporting period until after the holiday, muddying any comparison with last year’s performance. For at least the past five years Next has reported Christmas trading to Dec. 24. Much of the gain was online, where sales grew 15 percent, while store-based sales declined 9 percent.

Next’s performance was “excellent” and “admirable,” particularly considering how bad November was for the retail sector and the scale of the downgrades for some fashion and clothing peers, according to Liberum’s Tom Musson.

Sales in November suffered because of unusually warm weather, but then recovered in the weeks before Christmas, Chief Executive Officer Simon Wolfson said.

“Consumer’s not in a bad place,” he said in a telephone interview. “Wages are growing and employment is strong.”

Now the question is whether Next’s sales are representative of the industry. Fashion sales at the John Lewis Partnership were up 10 percent compared to last year, the closely held retailer said last week. Last year, Next also reported a strong Christmas period, only to be followed by dismal reports in the following days from some of its competitors.

Retailers discounted heavily in the days ahead of Christmas, rather than wait for Dec. 26 to kick off sales. Next held back from the price slashing, but didn’t cite it as a reason for the profit cut. Competitors that discounted more heavily will have to prove that extra sales made up for the thinner margins.

Next cut its profit forecast for the year to 723 million pounds ($908 million) from 727 million pounds.

--With assistance from Lisa Pham.

To contact the reporter on this story: William Mathis in London at wmathis2@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman, Marthe Fourcade

©2019 Bloomberg L.P.