Next maintains profit guidance after online sales offset high-street decline

The fashion retailer stuck to its annual earnings guidance after third-quarter sales growth of 2%, as the company continues smooth changeover from high street to online sales.

Next high street store front
Source: Bloomberg

Next saw its full price sales in the third quarter (Q3) rise by 2% compared with last year, which is in line with its expectations, according to a trading update.

The rise was driven by online sales, which were up 12.7%, with the company’s positive performance offset by weaker high street performance, with retail sales down 8%, the company said.

The positive set of results allowed Next to announce that it had maintained its guidance which it laid out five weeks prior, with the company offering full price sales growth of 3%, representing a 0.1% increase in pre-tax profit to £727 million and earnings per share growth of 5%.

Next online overtakes high street

Earlier in the year, the fashion retailer outlined its response to the ‘threats and opportunities of a rapidly changing retail world’ whereby ever-increasing volumes of sales are migrating from high street stores to online.

In its half year results, the company reflected on how 10 years ago, its high street stores contributed around £2.2 billion in revenues and made up around 67% of total group sales and profits.

But this year, the company estimates that high street sales will come in below £2 billion and contribute only around 30% of total group profit.

In a bid to manage the mass migration of sales from the high street to online the fashion retailer is keeping a close eye on its stores rent levels and new lease terms to ensure that they are in line with its levels of trade and volatility.

Next prepares for Brexit

Despite recording strong half year results, with the retailer raising its profit forecast for the full year from £717 million to £727 million, the company is worried about Brexit, as it could force Next to contend with higher tariffs on goods coming into the UK.

The company has told shareholders that it is taking necessary steps to prepare for a potential no-deal Brexit, including the business hedging its exposure to Sterling volatility on products that it will sell up to January 2020.

The company said that it plans to issue a Christmas trading update for sales to 24 December on 3 January 2019.

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