Holiday Trading Update

Fashion retailer Next announced improved total sales growth during the 2018 holiday period, though in-store sales again fell sharply.

• Next reported total full-price sales grew 1.5% year over year during the holiday trading period,comfortably beating the consensus estimate of 0.4% recorded by StreetAccount.
• Results were in line with September’s guidance and higher than the 1.3% growth reported in the third quarter of fiscal 2019.
• Full-price sales at Next Retail, the segment that represents store-based sales, declined 9.2% year over year, compared to a fall of 8.0% in the prior quarter but better than the consensus estimate of a 10.3% decline.
• The company grew online sales 15.2% year over year, ahead of consensus of 9.8% and compared to 12.7% growth in the prior quarter.
• The company reported 12.0% year-over-year growth in finance interest income.
• New space accounted for 0.6% of sales in 4Q19, implying full-price comparable sales growth of 0.9% (including online sales).

Next reported inventory in its end-of-season sale (including the stock put into its Black Friday event) was up 3% year over year. Clearance rates were broadly in line with expectations and consistent with profit guidance given in September. The company noted sales were disappointing in November, but there was a good half‐term holiday week at the end of October and strong sales in the three weeks just before Christmas.

Outlook

Sales and Profit Guidance for FY19

For FY19, ended January 2019, the company expects:

• Full price sales growth of 3.2%, in line with guidance given in September.
• Profit before tax to be £723 million, 0.6% lower than previous guidance and consensus of £727 million. Management attributed the £4 million difference to two factors. First, higher sales on seasonal products, such as personalized gifts and beauty products, reduced margin by £1.5 million; these products yield lower margins than the company’s core clothing ranges. Second, increased operational costs associated with higher online sales accounted for the remaining £2.5 million profit reduction.
• EPS of £4.35, a year-over-year increase of 4.4%, slightly lower than consensus growth estimate of 4.9%.

Sales and Profit Guidance for FY20

For FY20, ending January 2020, the company currently expects:

• Full price sales growth (including interest income) of 1.7%, in line with the second half performance in FY19.
• 5% and online sales to be up 11%.
• Profit before tax to be £715 million, a year-over-year decline of 1% from current year forecast and lower than the consensus of £727 million.
• To generate surplus cash of £300 million.
• EPS to grow by 3.6% year over year, higher than the consensus growth estimate of 3.0%.

That said, the above estimates do not factor in potential effects from Brexit, coming March 29, 2019.