May 10, 2018 / 6:22 AM / 2 months ago

Next raises profit forecast after spring thaw boosts sales

LONDON (Reuters) - British clothing retailer Next (NXT.L) upgraded its full-year profit forecast on Thursday, after an improvement in the weather in April led to better-than-expected first-quarter sales.

Mannequins are pictured in the window of a Next clothing store in London March 26, 2009. EUTERS/Luke MacGregor

Shares in Next rose 6.2 percent, the top FTSE riser, after it guided towards a full-year pretax profit of 717 million pounds ($972 million), up from a previous forecast of 705 million pounds.

Next has been one of Britain’s most successful clothing retailers in terms of profits but it has faltered over the last two years as consumer spending moved away from clothing towards holidays and entertainment.

First quarter sales were driven by erratic weather.

While sales fell 10 percent in a snowy week at the end of February compared to the same time last year, they rose over 25 percent in one mid-April week when Britain enjoyed a heatwave.

The quarter, which ended May 7, finished with sales around 40 million pounds ahead of the company’s internal forecast.

“Overall, we think that the recent warm weather, netted off against the effect of the snow earlier on, has probably benefited us by around 2 to 3 percent,” chief executive Simon Wolfson told Reuters. “It’s probably brought forward some sales.”

Online sales rose 18.1 percent while sales in its more than 500 stores fell 4.8 percent, with analysts at RBC saying both figures were better than expected.

Wolfson said that the shift from in-store to online sales would continue, a trend that could help protect the firm as the high street continues to struggle.

Analysts at Morgan Stanley, who have an “underweight” rating on the stock, said that the strong first quarter sales number “is likely to be taken as evidence that Next has managed to negotiate some pretty challenging market conditions very well.”

Sales at full price were up 6.0 percent during the first quarter and the company forecast a sales increase of 2.2 percent for the full year to January 2019.

NO PROFOUND CHANGE

Next shares have increased 17 percent so far this year but are trading well below levels of two years ago. Recent UK consumer data, surveys and company updates have been downbeat, adding to concerns of slow UK growth. [nL9N1QI01I]

However Next appears to be withstanding difficult high-street trading conditions better than other retailers.

Shares in competitor Superdry (SDRY.L) tumbled 11 percent on Thursday after the fashion retailer said it expected 2018 full-year gross margins to decline and it gave a weaker than expected revenue forecast for 2019.

Already this year Toys R Us UK, electricals group Maplin and drinks wholesaler Conviviality have plunged into administration, while fashion retailer New Look and floor coverings retailer Carpetright are closing stores.

The retail sector could be further shaken up by plans for Sainsbury’s (SBRY.L) to buy Walmart’s (WMT.N) Asda for around 7.3 billion pounds ($10 billion).

While best known for groceries, both Sainsbury and Asda compete with Next in clothing as well. But Wolfson said the merger was unlikely to transform the industry.

“I think they’re two very different brands. Economies of scale in clothing tend to be achieved by buying more of the same garment,” he said.

“As with all mergers, there will be some economies to be made in things like warehousing... but I don’t think it will profoundly change the clothing market.”

($1 = 0.7378 pounds)

Additional reporting by James Davey, editing by Kate Holton and Elaine Hardcastle

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