Next Shares up 8% as it boosts earnings forecasts on strong Christmas trading


Next’s share price rose nearly 8% on Thursday as better-than-expected Christmas trading prompted it to raise earnings forecasts.

At £66.66 per share, the FTSE 100 retailer rose to its most expensive five months earlier in the session. It has since returned to retail at £65.60.

Next said full-price sales rose 4.8% in the nine weeks to December, much better than a predicted 2% drop. Turnover was £66 million higher than the company had expected.

The strong end to the year has encouraged Next to reinstate its previous pre-tax profit forecast of £860m for the full year to January 2023. This would represent an increase of 4.5% year-on-year.

The retailer cut its forecast to £840 million in September due to weak trading in August and fears of a worsening cost-of-living crisis.

Store and online sales are rising

Full-price sales of its online business were up 0.2% during the nine weeks to Dec. 30, Next said. Meanwhile, its stores’ comparable revenues were up 12.5% ​​year over year.

Sales at its stores and in cyberspace both exceeded the company’s expectations, it said.

The FTSE 100 company explained that it may have underestimated the negative impact of Covid-19 on shopping visits a year earlier. It may also have misjudged the effect of improved inventory levels on the Internet and physical activities.

Next suffered from “exceptionally low” inventory levels during the same period of 2021 due to supply chain disruptions.

Exercise caution

Despite recent solid trading, Next said it continues to look “cautiously” at the new fiscal year. It predicted full-price sales are likely to fall 1.5% year on year, while pre-tax profits are likely to fall 7.6% to £795 million.

The retailer said price inflation for essential goods such as energy would undercut customer demand in 2024 financially. In addition, it predicted that rising mortgage costs would hit sales as homeowners’ flat rates expire, as did higher price tags on its own products.

Next said a devaluation of the British pound against the US dollar would mainly drive price inflation next year. About 80% of the company’s contracts are negotiated in dollars.

On the light side…

However, Next added that “we expect employment to remain strong, so we don’t expect a collapse in demand or an increase in bad debt on top of our current provisions.”

The company said it expects price inflation for comparable goods to reach 8% in the spring/summer season before falling to 6% in the second half.

Next said it believes “cost pressures are now abating through a combination of lower freight costs and lower factory gate prices (dollar prices”). It said falling raw material prices, improved factory production and new sources of supply would help reduce factory costs.

“Real Pain Is Coming”

Mark Crouch, an analyst at social investment network eToro, said that “given the economic backdrop, Next’s Christmas statement will come as a pleasant surprise to shareholders.”

But he noted that “a forecast drop in both sales and profits for the coming year suggests the retailer expects the real pain to come in 2023.”

Crouch added that “the balancing act for Next will be to keep its prices competitive enough at a time when shoppers are hit by above-average inflation and higher mortgage payments.”