Full-price sales in the 13 weeks leading up to October 30 were 17.0% higher than in 2019, with sales for the past five weeks increasing 14%. This reflects very strong online growth in the quarter, up 40.0%, offset by a 6.1% drop in retail sales. The activity experienced particularly strong growth of third-party brands sold on the Next site.
However, management maintains its forecast for fourth quarter sales growth of 10% from 2019. The slowdown in fourth quarter sales reflects lower pent-up demand, supply disruptions limiting inventory availability and inflation having an impact on consumer spending.
Pre-tax profit for the full year is still expected to be £ 800million as investments in digital marketing and rising air freight costs offset higher sales.
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Half-year results (09/29/21)
Total group sales rose 7.6% to £ 2.2 billion from 2019. This was driven entirely by online sales. Pre-tax profits rose 5.9% to £ 346.7million.
Full-price sales in the first eight weeks of the second half were up 20% from 2019, compared to the 6% growth forecast in the second half. As a result, Next is updating its advice for the fourth time this year. He expects full-price sales to rise 10% for the full year, while the pre-tax profit forecast has also been raised from £ 36million to £ 800million.
Full-price sales performance was boosted by pent-up demand following the spring closings, as well as warm weather in June. The group estimates that around £ 75million in sales was lost during the 10 weeks of closure, which reduced overall profits by £ 20million as some sales changed online and return rates took off. fall.
In line full-price sales increased 55% to £ 1.4 billion, with double-digit growth from the NEXT brand, third-party LABEL and online operations overseas. Next believes there is much less physical competition for its LABEL UK business. The group also recorded good results with its new Total platform, which allows other retail chains to use Next’s technology, warehousing, logistics and other infrastructure, for the benefit of their own. online activity. Six brands are listed on Total Platform: Childsplay Clothing, Laura Ashley, Victoria’s Secret, Aubin, Reiss and GAP. Four are traded on the platform, the other two are expected to launch next year.
Retail sales were down 38% to £ 540.1million, largely due to blockages associated with structural challenges on Main Street. The average term of store leases is 5 years, compared to 5.5 years. Half of the store leases will expire or be broken in a little over 4 years.
Inventory levels are around 12% lower than in 2019, which is “far from optimal”. However, sales are not affected too much – it could be due to a greater range of alternative options.
Interest income in the Finance business fell 11% to £ 119million as people continue to pay off their balances faster. Net profits fell 13% to £ 66million.
Then he discussed his outlook in detail. He doesn’t expect to attract as many new customers over the holiday season this year, but believes the overall customer retention trends are positive.
The group said “ in general we have not encountered any difficulties in recruiting staff, especially in our stores, ” but warned that some deliveries may take longer to arrive as the period approaches. Christmas rush.
Cost inflation is around 2% and is expected to hit around 2.5% next year.
Next is building a new warehouse to increase capacity in line with the growth of online business. Phase 1 is expected to be operational in October 2023 and will increase capacity by + 45%. Phase 2, which expands mechanization within the new building, is expected to add an additional + 45%. In the meantime, the group is implementing new measures to maximize the capacity of the existing fleet.
Summarizing the challenges and opportunities ahead, the group said: “The intimidating fact is this: Nothing but exceptional execution and constant innovation, across the company, will allow us to maximize the benefits. The ever-changing opportunities and challenges of an increasingly online world. . It’s a tall order, but we are fortunate to have this chance. ”
- Price / earnings ratio (next 12 months): 15.1
- Ten-year average price / earnings ratio: 14.0
- Potential dividend yield (next 12 months): 2.6%
All ratios are from Refinitiv. Remember that returns are variable and are not a reliable indicator of future income. Keep in mind that the key figures shouldn’t be considered in isolation – it’s important to understand the big picture.
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This article is original content from Hargreaves Lansdown, published by Hargreaves Lansdown. Unless otherwise stated, estimates, including potential returns, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Returns are variable and not guaranteed. The value of investments goes up and down, so investors could suffer a loss.
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