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Share Name Share Symbol Market Type Share ISIN Share Description
Next Plc LSE:NXT London Ordinary Share GB0032089863 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -268.00 -4.66% 5,486.00 5,498.00 5,502.00 5,826.00 5,492.00 5,766.00 545,249 16:35:11
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
General Retailers 4,376.5 823.1 530.8 10.3 7,256

Next PLC Trading Statement

04/08/2022 7:00am

UK Regulatory (RNS & others)


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From Jul 2022 to Sep 2022

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TIDMNXT

RNS Number : 8502U

Next PLC

04 August 2022

NEXT PLC

Trading Statement - 4 August 2022

OVERVIEW

Sales in the first half of the year have been dominated by a sharp reversal of last year's lockdown trends. Sales in Retail stores recovered, while Online growth appears to have reverted back to its longer term trajectory. Many product trends have also returned to pre-pandemic norms. Lockdown winners such as Home and sportswear retreated, while formalwear returned to favour. As anticipated, Online returns rates and surplus stock also reverted to pre-lockdown levels.

HEADLINES

-- Q2 full price sales (1) up +5.0% (2) versus last year, GBP50m ahead of our previous guidance.

   --     Full price sales guidance for the second half maintained at +1.0%. 
   --     Full year profit guidance increased by +GBP10m to GBP860m (+4.5% versus last year). 
   --     Earnings Per Share (EPS) guidance increased to +7.2% versus last year. 

(1) Full price sales are total sales excluding VAT, less items sold in our Sale events, Clearance operations and Total Platform.

(2) Full price sales against last year, excluding Russia and Ukraine, were up +6.3%.

FULL PRICE SALES PERFORMANCE

Full price sales in the quarter were +4.7% stronger than we expected. In part, we believe this over-performance has been the result of unusually warm and dry weather in June and July. A marked return to formal dressing, perhaps driven by pent up demand for social events (weddings etc.), has also played to the strengths of the NEXT brand.

Retail and Online Sales Trends

At first sight, our full price sales performance against last year suggests that (1) growth Online has ground to a halt and that (2) Retail is having something of a renaissance. This is certainly the case on a one year basis. But we think that these changes reflect a short term reversal of pandemic trends, and are unlikely to be indicative of longer term trends in consumer behaviour.

Last year, our stores were closed for most of the first quarter. Even when they reopened we believe that many customers remained wary of visiting shops. During this time we think Online shopping was inflated by at least as much as Retail sales were depressed. The charts below show the sales performance of our Online and Retail businesses against one year (red line) and the compound annual growth rate (CAGR) against the last pre-pandemic year, three years ago (blue line). The three year CAGR is much more consistent than the growth against last year and, we believe, gives a clearer picture of long term consumer trends.

Click or paste the following link into your web browser to view the charts titled 'Online Full Price Sales Performance by Month' and 'Retail Full Price Sales Performance by Month'. Refer to page 1 for these charts.

http://www.rns-pdf.londonstockexchange.com/rns/8502U_1-2022-8-3.pdf

Quarterly Sales by Business

A more detailed breakdown of our sales performance by business division is given in the tables below for the first and second quarter. The first table shows the comparison against last year and the second against three years ago.

 
One Year Comparison                       Versus 2021/22 
Full price sales (VAT exclusive) 
 by division                       Q1 to 30 April  Q2 to 30 July 
=================================  ==============  ============= 
Online                                    - 11.1%          +0.2% 
Retail                                    +284.5%         +12.0% 
                                   ==============  ============= 
Total Product full price sales             +22.1%          +4.5% 
Finance interest income                    +11.4%         +13.0% 
                                   ==============  ============= 
Total full price sales including 
 interest income                           +21.3%          +5.0% 
 
 
Three Year Comparison                     Versus 2019/20 
Full price sales (VAT exclusive) 
 by division                       Q1 to 30 April  Q2 to 30 July 
=================================  ==============  ============= 
Online                                     +47.0%         +44.4% 
Retail                                     - 8.2%          +4.7% 
                                   ==============  ============= 
Total Product full price sales             +21.3%         +25.5% 
Finance interest income                    - 2.2%          +2.4% 
                                   ==============  ============= 
Total full price sales including 
 interest income                           +19.5%         +23.8% 
 

A Resurgence in Retail?

During Q2, Retail's full price sales performance has been much better than we had anticipated and up (+4.7%) against three years ago. We had planned that our stores would be down against 2019, following the long run of negative like-for-like retail sales we have experienced since 2016.

We suspect that the apparent improvement in the fortunes of our stores is, to some extent, down to the number of competing stores that have closed in the last three years. This is supported by ONS industry statistics (3) for February to June which suggest that the total money spent on clothing in all UK retail stores is down -6% compared to three years ago.

(3) Two ONS datasets are used: (1) total retail spend on clothing in the UK and (2) the percentage of sales achieved online. Combining these two provides the total spend in physical shops. Data sources: (1) Retail sales pound data VaINSAT, 22 July 2022 and (2) Retail Sales Index internet sales ISCPNSA3, 22 July 2022.

Longer Term Online Growth Rates

In the first half, the CAGR of our Online business over the last three years is very similar to the CAGR experienced in the three year period pre-COVID, as shown in the table below. Of course, these numbers do not imply Online sales will continue to grow at +13.4%, but they do demonstrate that our current Online sales growth is not as unusual as it first appears.

 
                                    Three years    Three years pre-COVID 
                                    July 2019 -       2016/17 - 2019/20 
                                     July 2022 
                                    (Six months)        (Full year) 
===============================  ===============  ====================== 
 Online compound annual growth 
  in sales                            +13.4%              +12.6% 
                                 ===============  ====================== 
 

ONLINE RETURNS RATES - BACK TO PRE-COVID LEVELS

As anticipated, returns rates have reverted and are currently close to pre-pandemic levels at 42%. This follows two years of exceptionally low returns rates during the pandemic. The low returns rates during the pandemic were mainly driven by product mix, with sales of low returning categories such as Home, childrenswear and sportswear far exceeding their normal levels.

Click or paste the following link into your web browser to view the chart titled 'Online Full Price Returns Rates Five Year View'. Refer to page 3 for this chart.

http://www.rns-pdf.londonstockexchange.com/rns/8502U_1-2022-8-3.pdf

OF SEASON SALE

Stock Going into the Sale

Last year, our stock for Sale was exceptionally low mainly as a result of industry wide stock shortages. So this year Sale stock was +30% up on last year. However, against three years ago, Sale stock grew by +25%, broadly in line with the growth in full price sales over that period (as set out in the table below). Once again, it is last year's figure which is unusual, with this year's surplus returning to more normal levels.

 
                             H1 full price 
                             product sales      H1 
                             (exc. interest   surplus  Difference 
                                income)        stock    in growth 
==========================  ===============  ========  ========== 
Growth versus last year 
 (2021/22)                       +12%          +30%       +18% 
Growth versus three years 
 (2019/20)                       +23%          +25%       +2% 
 

Clearance Rates

To date, our clearance rates have been below our expectations. As mentioned earlier, warmer weather has been very helpful for full price sales during the quarter. However, the particularly hot weather experienced on the first two days of our Sale encouraged customers to stay away from shops and particularly hampered clearance of heavier weight products. The additional cost of the lower clearance rates is reflected in our revised central profit guidance and has been more than offset by the benefit of better full price sales.

NEXT FINANCE

We expect NEXT Finance profit to be in line with the guidance of GBP160m previously issued in March and for our customer receivables balance to close the year at GBP1.28bn, which would be up +10% versus last year and ahead of pre-COVID levels. As set out in the table below, defaults show a marginal deterioration against last year but are still materially better than pre-COVID levels.

 
                                          July 2022  July 2021  July 2020  July 2019 
========================================  =========  =========  =========  ========= 
Defaults as a % of customer receivables 
 balance                                       1.7%       1.6%       1.9%       2.0% 
 

GUIDANCE FOR FULL PRICE SALES, PROFIT AND EPS

New Central Guidance

The GBP10m increase in our central guidance for profit before tax is explained in the table below. GBP15m of additional profit has come from better than expected full price sales in the first half. Retail sales were a larger percentage of our total full price sales in the quarter, which improved margin by +GBP6m, and we are expecting a similar gain in the second half. These increases have been partially offset by additional costs as set out in the table below.

 
Previous profit before tax guidance (GBPm)                        850 
==========================================================  ===  ==== 
Q2 full price sales beats                                   +15 
Q2 increase in participation of Retail sales                 +6 
H2 expected increase in participation of Retail sales        +8 
==========================================================  ===  ==== 
Total increases in guidance profit                                +29 
Lower clearance rates of surplus stock                      - 6 
Higher logistics costs (mainly fuel)                        - 6 
Higher Technology costs (mainly acceleration of developer 
 recruitment)                                               - 4 
Staff incentives / other                                    - 3 
==========================================================  ===  ==== 
Total increase in guidance costs                                 - 19 
==========================================================  ===  ==== 
Revised profit before tax guidance                                860 
 

Guidance Range

The stronger than expected sales performance in Q2 is not expected to continue into the second half and we are maintaining our sales guidance for the remainder of the year at +1%. Our caution stems from two factors, we believe that: (1) an unusually warm summer boosted sales in the first half and we do not expect a similar weather windfall in the second half; and (2) the impact of inflation on consumer spending is likely to worsen in the second half. Our latest full price sales and profit guidance ranges for the full year are set out in the table below.

 
                                                                  Previous 
                                               Central             central 
Guidance for 2022/23                  Lower   guidance    Upper   guidance 
==================================  =======  =========  =======  ========= 
H1 full price sales versus 
 2021/22 (actual)                    +12.4%     +12.4%   +12.4%          - 
H2 full price sales versus 
 2021/22                             - 3.0%      +1.0%    +5.0%          - 
                                    =======  =========  =======  ========= 
Full year full price sales 
 versus 2021/22                       +4.0%      +6.2%    +8.4%      +5.0% 
 
Profit before tax                   GBP820m    GBP860m  GBP890m    GBP850m 
Profit before tax versus 2021/22     - 0.4%      +4.5%    +8.1%      +3.3% 
Earnings Per Share                   543.3p     569.1p   588.5p     557.3p 
Earnings Per Share versus 2021/22     +2.3%      +7.2%   +10.9%      +5.0% 
                                    =======  =========  =======  ========= 
 

SHARE BUYBACKS

So far, in this financial year, we have spent GBP224m on share buybacks at an average price paid per share of GBP63.85, which equates to 3.5m shares. This reduces the number of shares in issue by 2.6%. If profits are in line with our guidance of GBP860m, then the Equivalent Rate of Return (4) (ERR) on these buybacks will be 10.6%.

(4) Equivalent rate of return (ERR) is calculated by dividing the anticipated pre-tax profits by the market capitalisation at the start of the financial year (January 2022). NB - Market capitalisation is calculated based on the shares in circulation, so excludes shares in the NEXT Employee Share Option Trust.

INTERIM RESULTS

We are scheduled to announce our results for the first half of the year on Thursday 29 September 2022.

Forward Looking Statements

Certain statements in this Trading Update are forward looking statements. These statements may contain the words "anticipate", "believe", "intend", "aim", "expects", "will", or words of similar meaning. By their nature, forward looking statements involve risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. As such, undue reliance should not be placed on forward looking statements. Except as required by applicable law or regulation, NEXT plc disclaims any obligation or undertaking to update these statements to reflect events occurring after the date these statements were published.

 
 Date:          Embargoed until 07:00 hrs, Thursday 
                 4 August 2022 
 Contacts:      Amanda James, Group Finance Director           Tel: 0333 777 
                 (analyst calls)                                8888 
                Alistair Mackinnon-Musson, Rowbell             Tel: 020 7717 
                 PR                                             5239 
 
 Photographs:   https://www.nextplc.co.uk/media/image-gallery/campaign-images 
 

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END

TSTVXLFBLVLZBBD

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August 04, 2022 02:00 ET (06:00 GMT)

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