All eyes on Next ahead of festive update
Fashion chain Next will fall under the spotlight tomorrow as the first major name to update on what is likely to have been the toughest Christmas in years on the high street.
Despite hopes of a last-minute shopping rush, concerns over a squeeze on hard-pressed consumers have caused Next’s shares to slump 25% in the past two months.
In its last update, Next warned of “extremely volatile” trading as a good September gave way to a disappointing October – but held its profits expectations in line with market hopes despite increasing pressure on shoppers from higher mortgage bills.
High street trading is unlikely to have been any easier since then.
The latest British Office for National Statistics (ONS) figures on retail sales volumes showed an 0.4% increase between October and November, although this was driven by online shoppers.
Sales volumes from predominantly non-food shops were more than 5% higher than a year ago, but worryingly for Next, the lowest growth has been seen from textile, clothing and footwear stores where sales grew by just 0.9% – the smallest increase since October 2005.
Analysts will be hoping that chief executive Simon Wolfson’s attempts to “put the magic back” into the Next brand with revamped shops and new ranges will inspire a better high street performance than last year, when the company reported a near 7% decline in like-for-like store sales.
A year ago, a strong online performance and a 9% sales boost for the Next Directory catalogue business came to the rescue of the group, although it warned in September of tougher times ahead for the Directory arm as a result of heightened customer credit vetting.
Pali International retail analyst Nick Bubb expects like-for-like sales from Next’s high street stores to be down 2% in the second half of the year, with like-for-like growth of around 1% for Directory.
Although Mr Bubb is sticking with predictions of £498m (€674m) in pre-tax profits for Next – slightly above consensus – concerns linger about margins after the latest ONS data also showed a fifth successive month of discounting on the high street.
“We hope for reassurance from Next in terms of the bottom-line when they report,” he added.
A fuller picture of prospects will emerge over the coming weeks as a host of other retailers update on festive trading.
Next week Sainsbury’s will give the first snapshot from the supermarkets, while investors will hope that Marks & Spencer’s revamped stores have boosted its performance over Christmas. H Samuel jeweller Signet – one of a raft of companies to warn on profits in the lead-up to the festive season – will also update on trading.
In the following week, Argos owner Home Retail Group and Currys owner DSG International will give closely-watched festive updates amid fears among City analysts in December over prospects for “big ticket” retailers and chains such as Argos, which sell gifts broadly available elsewhere on the high street or online.
Even if a late surge came to the aid of retailers, economists predict it could be the last hurrah of the beleaguered consumer before shoppers tighten their belts.
Howard Archer, Global Insight’s chief UK economist, said: “Once the sales are over, we expect consumer spending to soften significantly in 2008.
“Household purchasing power is likely to be dented by higher energy and food prices over the coming months, while many home owners face having to re-fix their mortgages at significantly higher rates.”
