Retailer Next reports sales dip

Clothing retailer, Next, said its trading prospects would be tough next year. It has reported another dip in quarterly sales, forcing the company to rely on further cost-savings to maintain its full-year profit forecast.

Next shares rose 3.6%, but are 31% lower then at the start of the year. Shares in rival, Marks & Spencer, which updates on trading next Tuesday, rose by up to 2.5%.

Next chief executive, Simon Wolfson, said Britain’s consumer climate was likely to remain difficult, as inflation rises and real earnings are squeezed.

Next, which trades from 540 shops in Britain and Ireland, from franchised stores overseas and online, has been Britain’s most successful clothing retailer of the last decade, but it warned, in March, that 2016 could be its toughest year since 2008, and its shares have fallen by a third this year.

Mr Wolfson said underlying demand for clothing has been weak since October, 2015, when he identified a cyclical move away from spending on apparel back into areas that suffered the most during the economic downturn, such as eating-out and travel.

A warmer-than-usual September also dented Next’s full-price sales for its third quarter, to October 31, which fell 3.5%. Next has forecast full-price sales for its year to January, 2017 in a range from down by 1.75% to up by 1.25%.

It said £6m (€6.67m) of new cost-savings, mainly from warehouse efficiencies, meant its central profit forecast for 2016-17 remained unchanged, at £805m.

It made £821m in 2015-16.

“We remain buyers on the short-term outlook, cash-generation, buy-back and valuation. But it is difficult to be positive on strategy here,” said Haitong analyst, Tony Shiret, highlighting zero sales growth from Next’s once high-flying directory online and catalogue business.

Mr Wolfson reiterated that in a “worst-case scenario” cost prices on like-for-like garments would rise by up to 5% in 2017, due to the fall in sterling since June’s vote by the UK to leave the EU. Next’s investment plans were unchanged by the vote.

“If anything, the market for new stores has got slightly softer since Brexit — it’s actually helping the supply of new space for the new year,” he said. The CEO said talk of a “hard Brexit”, which would see immigration controls take priority over membership of the EU’s single market, was unhelpful.