Sunny Days Are Here for Now at Britain's Shops
(Bloomberg) -- The Beast from the East is so last season. Heat-wave chic is the latest trend to hit the British high street.
Next Plc on Thursday upgraded its full-year profit forecast by 12 million pounds ($16.2 million) to 717 million pounds after better-than-expected first quarter revenue. The hot weather probably accounted for 2-3 percentage points of the 6 percent increase in Next brand sales in the 14 weeks through May 7.
Recent soaring temperatures have brought some relief for retailers and casual dining chains. As I’ve argued, the prospect of the clement conditions continuing through to June is good news for Britain’s beleaguered shops.
Next’s upbeat tone bodes well for Marks & Spencer Group Plc, which will report later this month. And for some weaker fashion chains, the hot few weeks could literally mean the difference between survival and failure.
Temperature swings have such a big impact because the way we shop has changed. Consumers no longer go to a department store at the start of the season and stock up. Indeed, a legacy of the financial crisis has been that we only buy what we need, when we need it. That means no new coats in a warm winter, and a rush for off the shoulder dresses and espadrille sandals when the sun shines.
Next is rightly cautioning that trading over the remainder of the year may not be as sunny. Thursday’s report benefited from easy comparisons in the year earlier period, when it didn’t get its ranges quite right. What’s more, some consumers may have bought their summer clothes early, leaving them less to spend later on in the season — though this might not be such a bad thing, as purchases when new fashions hit the stores are more likely to be made at full price.
Including Thursday’s 8 percent gain, the shares have risen about 20 percent since the company announced its full-year earnings in March. That probably included some expectations of good trading.
Still, the premium to M&S on a price to forward earnings basis looks deserved.
While consumers may be finally regaining their purchasing power, the outlook for their spending isn’t necessarily smooth. Next, however, is in a decent position to cope. It has a powerful online operation, is proactively managing its property portfolio, and is attempting to revive its large stores by whatever means it can, including by inserting catering concessions and even a car showroom.
Even if the sun doesn’t shine quite so brightly for the rest of the British summer, Next should be well able to weather any storms.
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