Next Raises Profit Forecast as Party Clothes Buoy Sales

(Bloomberg) -- Next Plc raised its profit forecast for the fifth time as it rode out the surge in omicron infections over the Christmas shopping season on demand for party dresses and formal clothing.

The British chain, with hundreds of stores across the country, expects profit of 822 million pounds ($1.1 billion) in the current fiscal year, up from an earlier forecast of 800 million pounds, it said Thursday. Next also declared another special dividend.

The retailer did warn of uncertainty as a result of the pandemic and rising inflation, with its own selling prices likely to rise about 6% in the second half of the year ahead. The shares declined about 1.5% in London trading.

Simon Wolfson, chief executive officer of Next, said the economic impact of the omicron variant of Covid-19 on the clothing sector “was definitely exaggerated,” and its sales remained solid right up to Christmas Day. 

The U.K. government’s decision to allow households to mix over Christmas and New Year, even while warning people to have small gatherings and socialize with caution, helped with Next’s sales of formal-wear. “You are going to get dressed up for Christmas lunch whether there are six people or sixty people,” Wolfson told Bloomberg. 

Missing Staff

Next sees full-price sales growth of almost 13% this fiscal year, up from an earlier projection of 11%. It also expects a strong year ahead, with a pretax profit of 860 million pounds and full price sales growth of 7%. 

Next intends to return 205 million pounds to shareholders through a 160-pence-a-share dividend, building on the 110-pence payout it made in September. 

Wolfson said that while omicron hadn’t affected sales, it was causing rising staff absences in its stores and warehouses as employees isolated because of Covid. 

“Absenteeism is definitely a factor at the moment and sickness levels are higher than we would normally expect at this time of the year,” he said, but added that it was manageable. “It is not something I am overly worried about at the moment.” 

Wolfson said Next was having to deal with rising costs, including wage inflation and higher freight rates. He said the supply crunch meant stock availability throughout the group was still constrained, but predicted that some of this pressure will ease by April. 

Read more: Inflation Isn’t Transitory for Next Plc: Andrea Felsted

Rising prices are already having a noticeable impact on customer behavior, he said, with some evidence that shoppers are buying fewer items, but at moderately higher price points, “perhaps exchanging volume for quality.”

What Bloomberg Intelligence Says:

Next’s upgraded pretax profit expectation for 2021-22, together with preliminary guidance for a 4.6% increase to 860 million pounds for 2022-23, is testament to the company’s operational prowess and its ability to adapt to changing consumer demand. 

-- Charles Allen, BI retail analyst

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Shore Capital said in a note to investors that Next’s fourth-quarter update was “reassuring from a well-managed company” and showed the relevance of the chain’s range to customers. 

©2022 Bloomberg L.P.