Next was one of a small number of fashion chains that did not cut prices before Christmas
Clothing giant Next kicked off the Christmas retail reporting season by posting weaker-than-expected sales at its high street stores after rivals discounted heavily during the crucial trading period.
Its chief executive Lord Wolfson said: “Despite a good final week before Christmas, November and December sales were disappointing given that snow adversely impacted sales in 2010. A number of factors have subdued sales in the final quarter and it is hard to judge to what extent warm winter weather and higher levels of competitor discounting masked the deeper, longer lasting, economic effects.”
A “slightly disappointing” performance by the physical retail chain was offset by a “strong” performance by its home shopping arm. Next was one of a small number of fashion chains that did not cut prices before Christmas and the retailer said the amount of stock going into its Boxing Day sale was 10% higher than last year.
Analysts are worried that the level of discounting in fashion stores in the run up to Christmas will have hit profits at some retail chains. That was not the case at Next with Wolfson stating it was on track to make annual profits of £565m. “We do not discount our products in the run up to Christmas and maintained operating margins,” he added. The retailer said it planned to hand £200m to shareholders via a share buyback.
Wolfson said the underlying economic situation appeared to be “slightly worse” than in September and was cautious about the outlook for consumer spending this year as the protracted wrangling in eurozone hit confidence. Retail analyst Matthew McEachran said the weaker-than-expected trading in Next stores over Christmas as well as potential for another year of subdued consumer spending could see profit forecasts trimmed by around 3%. The company’s shares opened down 5% at £26.11, pulling down the rest of the retail sector.
While Next store sales declined by a worse than expected 2.7% between 1 August and 24 December they were up nearly 17% at Directory. Taken together the divisions delivered growth of 3.1% which meant the retailer hit guidance given to analysts in November.
Conlumino analyst Neil Saunders said the retail stores performance was disappointing given last year’s trade was marred by snow but added: “That Next has been able to deliver overall growth in a price sensitive market without resorting to discounting is impressive. In the long run we believe that Next is a Christmas winner not just because it has delivered sales growth, but because it has delivered it profitably and largely at full margin.”