Next upgrades outlook following strong Q2

Full price sales at Next were up +5% YoY in Q2, £50m ahead of the retailer’s previous guidance, driven principally by clothing sales.

Consequently, Next is maintaining its full price sales guidance for H2 (at +1%), and has increased its full-year profit guidance by +£10m to £860m (+4.5% YoY).

Next says: “Sales in the first half of the year have been dominated by a sharp reversal of last year’s lockdown trends. Sales in retail stores recovered, while online growth appears to have reverted back to its longer-term trajectory. Many product trends have also returned to pre-pandemic norms. Lockdown winners such as home and sportswear retreated, while formalwear returned to favor. As anticipated, online returns rates and surplus stock also reverted to pre-lockdown levels.”

“But we think that these changes reflect a short-term reversal of pandemic trends, and are unlikely to be indicative of longer-term trends in consumer behavior.”

During Q2, store performance was better than anticipated, up +4.7% against 2019. “We had planned that our stores would be down against 2019, following the long run of negative LFL retail sales we have experienced since 2016,” states Next. “We suspect that the apparent improvement in the fortunes of our stores is, to some extent, down to the number of competing stores that have closed in the last three years.”

Walid Koudmani, chief market analyst at financial brokerage XTBcomments: “Next reported a +5% rise in sales growth for its second quarter as the retailer announced its sales trajectory is back in line with pre-Covid growth. The firm also increased its earnings per share and full year profit guidance by + 7.2% and £10m respectively.

“This is a fascinating earnings report because from the outset, it might herald the return of the high street. Online retail sales dipped -11.1% whilst retail stores attracted a +284% growth. However, this tells the story more about comparatives, as online sales dropped compared to lockdown periods in the previous year, while retail sales could only have grown after lockdown-induced store closures.

“All in all, this is a pretty good set of results for the retailer but shareholders will turn their focus firmly to the rest of the year as the eye of a cost of living crisis storm moves deeper into the retail sector. This is why the retailer doesn’t expect Q2 sales growth to maintain its pace, with inflation headwinds starting to bite consumer activity. In a worst-case scenario, Next expects sales could drop -3% in the second half of the year compared to last year.”

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