Next confirms 2019 Profit decline as it tackles challenging retail market

“No one knows what the High Street will look like in ten years, but one thing is certain: The people walking down it will be wearing clothes,” chief executive Lord Wolfson said

Next PLC (LON:NXT) confirmed a 0.4% dip in 2019 profit and maintained its expectations for the current fiscal year as it laid out a plan to address the challenges facing the fashion retailer.  

In the year ended January 2019, pre-tax profit fell to £722.9mln from £726.1mln last year, in line with the reduced guidance issued in a January trading update.

Full-price Next brand sales gained 3.1%, also as expected.

Total sales, including markdowns, rose 2.5% to £4.12bn as growth in the online and credit finance businesses mitigated of 14.7% and 12.1%, respectively, offset a 7.9% drop in retail store sales.

Next has been grappling with wider struggles on the high street due to subdued consumer spending and online competition.

In response to the increasing trend of online shopping, the company has been investing in improvements to its website and operational delivery.

Last year it also closed a net 21 stores, negotiated a rent reduction of 29% on leases it renewed and delivered £5mln of cost savings through various initiatives in retail.

Next said it believes the online fashion market represents a “long-term threat” to its retail business but potentially, a much “larger opportunity” for the group as a whole.

“No one knows what the High Street will look like in ten years, but one thing is certain: the people walking down it will be wearing clothes,” chief executive Lord Simon Wolfson said.

Brexit uncertainty not affecting consumer sentiment, says boss

He acknowledged there was a great deal of uncertainty surrounding Brexit but saw no evidence that this was affecting consumer behaviour.  

Next expects provisional import taxes outlined by the government as a temporary no-deal Brexit plan would reduce its tariff bill by about £12mln to £15mln. It plans to pass on this saving to shoppers.

“Our feeling is that there is a level of fatigue around the subject that leaves consumers numb to the daily swings in the political debate,” Wolfson said.

“It appears to us that consumer behaviour (in our sector) will only be materially changed if the UK’s departure from the EU (or continued uncertainty around this subject) begins to affect employment, prices or earnings. It does not seem to be having any adverse effect on these variables at the present time.”

Guidance for 2020 unchanged

Looking to the 2020 financial year, Next continues to expect a pre-tax profit of £715mln and a 1.7% increase in full-price sales. The group is targeting a further £3mln in cost savings, with an extra £2mln potential savings also identified.

To address the difficult retail market, Next plans to continue to develop its website and distribution platform, increase the range of products on offer, manage costs and take advantage of growth opportunities outside the UK.

“Our core strategy remains unchanged; focus on our customers, products and profitability, continuing to build on the capabilities of our brand and Online Platform and returning surplus cash to our shareholders,” said chairman Michael Roney.

Next proposed a final dividend of 110p, bringing the total payout for the 2019 fiscal year to 165p, up 4.4% on last year.

In morning trading, shares dropped 3.3% to 5,020p.

Investors expected more, says analyst

AJ Bell investment director Russ Mould said: “Full-year results for the year to January 2019 are bang in-line and there is no change to guidance for the new financial year. Clearly, investors were expecting something more given Next’s shares have fallen on the news.”

He added: “Next has earned a reputation for being one of the most resilient companies in the retail sector and so expectations are often high when it reports numbers.

“Over the years it has pleasantly surprised with generous dividends and strong trading. So one can only felt a slight sense of disappointment when the dividend is only lifted by 4.4% and sales growth guidance remains fairly mild.”

Source – Proactive Investors