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Next rides out weaker pound, sees brighter outlook
September 14, 2017 / 10:10 AM / 2 months ago

Next rides out weaker pound, sees brighter outlook

LONDON (Reuters) - British clothing retailer Next said it had managed to cushion the inflationary impact of a weak pound and nudged up its full-year sales and profit forecasts, sending its shares more than 10 percent higher on Thursday.

FILE PHOTO: A worker dresses a mannequin in a shop window display at a branch of clothing retailer Next in London's West End, September 30, 2014. REUTERS/Andrew Winning/File Photo

Next, which has been Britain’s most successful clothing retailer since the turn of the century, said its prospects appeared less challenging than six months ago after it improved its ranges and website.

“We’re using analytics and data management to help us understand our customers better and we’re able to offer a more specific service for individual customers,” Finance Director Amanda James told Reuters.

British consumers are being squeezed by high inflation and muted wage growth and the improved outlook at Next should not be seen as a reflection of the wider economy, James added.

The group said it had mitigated the impact of the decline in the pound on its prices following the Brexit vote by using new and developing sources of supply and taking advantage of surplus manufacturing capacity in a weak overall market.

It expected price rises of no more than 2 percent in the first half of 2018, and no price rises in the second half, assuming no further movements in the value of sterling.

Its shares traded 10.4 percent higher by 0945 GMT to give it a market value of over 7.1 billion pounds ($9.4 billion).

SOURCES OF GROWTH

Next has faltered over the last two years due to a broader slowdown in spending on fashion and footwear that it first identified in 2015.

Signs of improvement were evident in its directory business, which includes online, and international sales lifted by the weak pound. While sales in its Directory business were up 5.7 percent in the first half of the year, its Retail arm fell 8.3 percent.

However the group has continued to open stores, believing that physical space remains profitable if not as productive as before.

“We take a bottom-up view,” James said. “If we see an opportunity we will still go for that opportunity.”

Next’s first-half profit fell by 9.5 percent to 309.4 million pounds, which analysts at RBC said was slightly better than consensus forecasts.

“Given the stronger trend in Directory sales, short term we see the risk to guidance and consensus EPS to the upside‎, which should help sentiment improve on the shares,” analysts at the bank said, though it said questions remained over the sustainability of the improvement in Directory.

Next also lifted its guidance for full-price sales for the year for the second time in less than two months.

“Our performance in the last three months has been encouraging on a number of fronts and whilst the retail environment remains tough, our prospects going forward appear somewhat less challenging than they did six months ago,” it said.

Next said it now expected its full-year sales to come in between 2.0 percent down and 1.5 percent higher, from a previous range of down 3.0 and up 0.5 percent in August.

The mid-point of its profit guidance moved up by 7 million pounds to a target of 717 million pounds, it said.

($1 = 0.7571 pounds)

Reporting by Kate Holton; Editing by Paul Sandle/Keith Weir

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