Next and HMV count cost of lost sales as big freeze puts dent in profits

RETAILERS HMV and Next reported a drop in sales as fears mount the bad weather impacted greatly on December trading.

Next said that clothes prices will probably rise by about 8% in the first half of this year, while HMV is planning to shut around 60 stores.

Next, Britain’s second biggest fashion chain behind Marks & Spencer, said sales at shops open at least a year fell 6.1% from August 1 to December 24.

Next estimated it lost £22 million (€26m) of full-price sales as a result of snow that swept across northern Europe in much of December.

The group now expects full-year profit of £540m to £555m, within its previous forecast range.

Next chief executive Simon Wolfson said that stripping out the impact of the weather, he had not noticed any significant change in consumers since November.

But he remained cautious about prospects for 2011 following an increase in VAT in Britain this week and with the rising cost of raw materials like cotton likely to drive up clothing prices by around 8% in the first half.

Meanwhile, HMV saw its shares plunge after it warned full-year profit would be around the lower end of forecasts and meeting a test of its lending rules in April would be tight.

HMV said sales at British and Irish stores open at least a year dropped 13.6% in the five weeks to January 1.

The group, originally scheduled to publish its Christmas figures next week, said it would sell or close around 60 British stores over the next year. HMV, which also owns Waterstones bookstores, is also looking to cut a further £10m of costs a year.

The retailer said snow and “weak” entertainment markets hurt sales and will push profit to the lower end of analyst estimates.

Following the bad news from HMV its stock declined to the lowest since its 2002 initial public offering.

David Jeary, an analyst at Investec Securities, said: “The core UK HMV division remains under considerable stress as a format and this must raise questions over its long-term future.”

HMV said it expects to report pretax profit, excluding some items, at the “lower end” of a stated range of analyst estimates between £46m and £60m.

Profit on that basis was £74.2m in the previous year.

In a statement HMV said the challenging entertainment markets, combined with the severe weather over its peak trading period have had a negative impact on the trading year.

“There are well-reported consumer headwinds as we enter 2011,” it said.

Tesco and Marks and Spencer will publish figures next week.