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Next's 2017 sales hit by consumer spending slowdown and online shift

Last updated: 20:30 23 Mar 2018 AEDT, First published: 18:53 23 Mar 2018 AEDT

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Next left its dividend unchanged

Fashion retailer Next Plc (LON:NXT) said 2017 was the most challenging year it has faced for 25 years as a shift to online shopping and weaker consumer confidence hit sales.

The company reported a 0.5% decline in total sales to £4.1bn in the year through January 2018, reflecting lower sales at its high street stores.

READ: Next's Christmas surprise lifts UK retail stocks ahead of slew of festive trading updates

Next Brand full price sales rose 0.7% but total sales including markdowns dropped 0.6%.

Sales at retail stores fell 7.9% while online sales grew 9.2%, adding to signs that more consumers are shunning the high street for the ease of shopping on the web.

Pre-tax profit edged down 8.1% to £726.1mln, in line with the midpoint of the company’s guidance range.

Next tackles consumer spending slowdown 

“A difficult clothing market coincided with self-inflicted product ranging errors and omissions,” said chief executive Simon Wolfson, explaining that the company allowed its ranges to become too focused on more fashionable lines and left out some of its easier-to-wear items.  

“At the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating structural shift in spending from retail stores to online.”

A weaker pound following the Brexit vote pushed up cost price inflation, meaning Next had to raise selling prices to maintain margins. Higher inflation and stagnant wage growth led to a general slowdown in consumer spending in retail.

Next expects the cost price inflation to ease as the devaluation of the pound has worked its way through the system.

The group left its total dividend unchanged at 158p, as expected by analysts.

Next re-evaluates the business

Wolfson said the challenges it has faced has prompted the company to "take a fresh look at almost everything we do", including the structure of its shop portfolio and the "in-store experience".

The company plans to roll out 98 concessions across its store portfolio, which is expected to generate annualised income of around £5mln. 

Next is in discussions to add other services to its stores including travel, branded footwear and cosmetics. It will also invest more in its digital offering in response to online demand.

2018 guidance better-than-expected

Next predicts retail sales will continue to fall in the new fiscal year due to the growing shift online.

Total retail full price sales are expected to drop 7.4% or 8.5% on a like-for-like basis while online sales are forecast to grow 10.3%.

Overall full price sales are projected to increase 1.0% thanks to strong online sales.

The company left its 2018 profit estimate unchanged at £705mln, representing a 2.9% decrease on the previous year. 

Shares rose 3.2% to 4,778p in morning trade as the guidance was better than analysts were expecting.

“Next’s 54-page-long results release is a whopper but it is what is missing from the statement that matters more than what is in it – there is no profit warning, there is no dividend cut and there is no sense of panic,” said Russ Mould, AJ Bell investment director.

“Instead, investors are getting a clear analysis of the challenges which face the retailer and a detailed study of its strategic responses, in terms of online investment, improved stock availability and how the company intends to manage its store estate. If only all companies were as transparent as this."

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