Holiday Trading Update

Traditionally the first major UK retailer to report Christmas-period trading, fashion retailer Next announced improved sales growth over the 2017 holiday period. In the 54 days ended December 24, Next reported that total full-price sales increased by 1.5%, strengthening from growth of 1.3% in the prior quarter. This was ahead of guidance for a full-price sales decline of 0.3% for 4Q18, which was published in early November.

• Full-price sales at Next Retail, the segment that represents store-based sales, declined by 6.1% year over year, a slight improvement on the fall of 7.7% in the prior quarter.
• The Next Directory segment, which includes online and catalog sales, grew full-price sales by 13.6%, compared to 13.2% growth in the prior quarter.
• Sales from new retail space accounted for a full-price sales increase of 1.1%.
• The company did not report total sales growth including markdowns.

Suffering from declining sales in 2016 and early 2017, Next has now reported three sequential trading periods of positive full-price sales growth. The improved performance is also a potential first indicator of robust holiday trading for UK retail. The company noted that stock for its end-of-season sale was “well controlled” and down 6% year over year.

Outlook

On the back of improved sales trends, Next raised its guidance for pretax profit for FY18, which closes at the end of January, to £725 million from £717 million. It raised its total full-price sales guidance to 0.3% from (0.3)% previously. The company expects EPS growth of (5.7)% versus prior guidance of (6.8)%. Consensus estimates were compiled before the latest results. For FY18, analysts expect revenues to fall 1% to £4.1 billion and EBIT to decline 9.0% to £753 million, yielding an EBIT margin of 18.4% versus 20.0% in FY17. Consensus calls for diluted EPS of 4.0 pence for FY18, down 6.5% from 4.32 pence in FY17. The company reports full-year results on March 23.