4Q17 Update

British fashion retailer Next reported 4Q17 revenues for the 54 days ending December 24, 2016. Next Retail full-price sales, which includes all in-store sales, declined 3.5%, while Next Directory full-price sales, which includes online and catalog sales, increased 5.1%. Overall full-price sales of the Retail and Directory segments, which the company terms as Next Brand, declined 0.4% in the quarter. This was well below analysts’ expectations of around 2% positive growth. 4Q17 sales marked a sequential improvement from 3Q17, but management had expected positive sales growth in 4Q17, as sales comparisons from last year were undemanding. Sales in the end-of-season sale were down 7% compared to last year.

FY17 Update

For FY17, the Next Retail segment’s full-price sales declined 4.3% year over year, with space growth contributing +1.4%. Next Directory full-price sales increased3.6% year over year. Next Brand sales declined by 1.1% year over year. FY17 total sales, including markdowns, increased 0.4% year over year.  Within Next Directory, UK full-year sales increased 1.4% year over year and Oversees sales increased 18% year over year.

Guidance

Following the 4Q17 trading results, the company lowered its central guidance for FY17 sales, PBT and EPS. The company forecasts total full-price sales growth for the Next Brand will decline 1.0%. Next forecasts FY17 PBT will be down 3.6% year over year to €792 million, and EPS down 0.6%. FY17 revenue consensus estimates stand at £4,189.5 million, implying flat year-over-year growth. Consensus expects PBT of £801.0 million for the full year, implying a year-over-year decline of 2.5%, and EPS of 438 pence, implying flat growth. Next expects FY18 to be another challenging year. Following the devaluation of the pound, the company expects to increase product prices by up to 5%, which management expects to depress sales revenue by approximately 0.5%. The company forecasts FY18 Next Brand full-price constant-currency sales growth will fall in the range of -4.5% and +1.5%, implying a mid-point of-1.5%, and marginally lower than in FY17. Overseas sales are expected to be flattered by the pound’s devaluation, and total full-price sales are expected to fall in the range of -3.5% to +2.5%. The company faces a number of cost pressures in FY18, including National Living Wage increases, general wage inflation, business rates revaluation, Apprenticeship Levy charges, online marketing and website system improvement costs. Next forecasts FY18 PBT will fall in the range of €680–780 million, implying a year-over-year decline of -2% to -14%.