A weak Christmas for Next casts a shadow on UK holiday retail sales
January 9, 2017 12:32 PM
(Bloomberg)—U.K. clothing retailer Next Plc forecast another tough year after a disappointing Christmas, sending its shares plummeting and dealing a blow to the industry at the start of the holiday reporting season.
Pretax profit for the year through January 2018 will be in a range of 680 million pounds ($834 million) to 780 million pounds, the company said Wednesday, below estimates of about 784 million pounds. Next, No. 12 in the Internet Retailer 2016 Europe 500 with 2015 online sales of $2.39 billion, also cut its forecast for the year ending this month, pushing the stock down about 10% and heading for its lowest close in almost four years.
The reduced guidance from one of the industry’s bellwethers is likely to deepen concern that rising expenses and a Brexit-induced squeeze on consumer spending will pinch industry profits in 2017. Shares of Marks & Spencer (No. 18 in the Europe 500), Primark-owner AB Foods and Debenhams Plc (No. 33) also slid ahead of their Christmas trading updates, due this week.
“Next’s outlook for 2017 rings the alarm bell for the rest of the sector,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone. “There’s a widespread expectation that consumer spending will be under pressure this year.”
Christmas was “moderately disappointing,” CEO Simon Wolfson said by phone. Early-season discounts by competitors led to a drop in demand at Next’s traditional post-Christmas clearance event, when sales were down 7%. The retailer has a policy of never discounting before the holiday and won’t be changing that approach, Wolfson said.
Full-priced sales under the Next brand fell 0.4% in the 54 days ended Dec. 24, a far cry from the 2.2% increase that analysts expected.
“We are preparing the company for tougher times,” the Leicester, England-based retailer said in a statement.
Wolfson said the company’s biggest challenge this year will be to contend with a cyclical slowdown in spending on clothing and footwear. A 15% drop in the sale of gift cards this year shows how fewer Britons want clothing as a present, the CEO said.
Not all fashion retailers are finding business so difficult. Since the Black Friday discounting week in November, fashion has been the best-performing product category at department-store chain John Lewis plc (No. 11). Sales at Jigsaw (No. 443)—a premium British fashion chain—rose 10% in December even though the retailer didn’t discount products before Christmas.
“The backdrop for consumer spending this Christmas couldn’t have been more benign,” John Stevenson, an analyst at Peel Hunt, said by phone. “The demand was there, it just wasn’t being picked up by Next.”