Next share price edges lower after as high street sales slump

Next delivered profits in line with the annual guidance, but the company’s share price slid by a little over 1% on Thursday morning after revealing that high street sales slumped in its full-year 2018 results.

‘As anticipated, the year to January 2019 was challenging for NEXT as we continue to experience a structural change in our business, with sales continuing to transfer from our stores to online,’ Next chairman Michael Roney said.

Even though the high street looks set to remain challenging our online business continues to increase its contribution to sales and profit of the group,’ he added.

Next results: key figures

Earnings per share (EPS) for the group increased by 4.5% to 435.3p, with Next proposing a final ordinary dividend of 110p, taking the total ordinary dividend for the year to 165p, an increase of 4.4% on last year.

Total group sales hit £4.2bn, with online full price sales increasing by 14.8%, while high street full price sales declined by 7.3%.

Cash flow remained strong, with the fashion retailer returning £541 million to shareholders through a combination of ordinary dividends (£216m) and share buybacks (£325m).

During the year, Next purchased 6.3 million shares at an average price of £51.65 and reduced its shares in issue by 4.3%.

Next has continued to invest in the business, spending £129 million on stores, warehousing and systems. Net debt increased to £1.09 billion up slightly from £1 billion driven by the sales growth in nextpay, its online credit business.

Migrating sales online

The shift online is not quite as one-way as it might first appear, the company said, with it costing less to deliver online orders to its stores than to a customer's home. As such, Next offers free delivery for orders collected in store, as opposed to a charge of £3.99 for delivery to home.

For many of its customers the store collection service is not only cheaper, it is also more convenient than staying at home to receive a delivery. As a result, around half of the company’s online orders are delivered to its stores. These orders represent one third of its online turnover.

Shops are even more important in facilitating online returns for Next customers. Over 80% of all its returns come back through its stores. So, for the moment, our retail estate and staff remain central to the service the company offers online.

Hence, despite high street sales slumping, the company must strike a balance in reducing its physical presence on the high street with the preferences of its online customer base.

‘We cannot decide how our customers will shop; our job is to adapt and serve them in whatever way they most want,’ the company said.

To this end Next has changed dramatically over the last fifteen years and will continue to transition its business in line with its customers consumption habits.