The Week Ahead: Fashion retailer Next to update on Christmas trading
PUBLISHED: 06:00 01 January 2018
Fashion chain Next will kick-off the Christmas trading update season for the retail sector when it reports to the market this week, with high street firms generally struggling amid difficult conditions.
City analysts expect Next to post another set of disappointing figures, with broker Numis pencilling in a 0.5% decline in total sales in the two months to Christmas Eve.
However, investors will pay greater attention to the breakdown of Next’s sales performance over the period following another troubling year for the retailer.
The group saw a 7.7% plunge in sales across its high street shops in the third quarter, while its better performing directory arm recorded a 13.2% rise.
In March, the group reported its first drop in annual profits since the financial crisis with a 3.8% fall to £790.2m.
Graham Spooner, investment research analyst at The Share Centre, believes recent data has done nothing to inspire confidence ahead of Wednesday’s trading update.
“The latest news that footfall on the high street for the Boxing Day sales was lacklustre won’t make pleasant reading for investors in Next and other retailers,” he said.
Data from Springboard suggests footfall in the last trading week before Christmas was 7.1% down year-on-year, while on Boxing Day it was 5.9% lower.
It comes as the retail sector is hammered by a combination of rising costs linked to the Brexit-hit pound and the resulting decline in consumer confidence.
Next chief executive Lord Simon Wolfson, a prominent Leave campaigner during the referendum campaign, said last month that cautious consumers were only buying “as and when they need” as trading remains “extremely volatile”.
Next’s central profit outlook for the year is £717m, which would mark a 9% fall on 2016-17.
The retailer is the first in line among a long list of sector peers to also report on Christmas trading in the coming weeks, with experts predicting that some firms could have to issue profit warnings.
Retail analyst Nick Bubb said: “It would be surprising if nobody has to bring forward their scheduled announcements.”
However, Clive Black of Shore Capital said that, despite some sign of early discounting, there had been only limited evidence of the kind of “panic activity” last seen at Christmas at the height of the financial crisis.
He added: “We also point out that most retailers have been preparing for a tougher trading environment, manifested in lower stock commitments and adjusted operating schedules. Going into the January reporting season we expect upgrades and downgrades and some in-between.”