Next's boosted by hot summer but stays cool on outlook

Next got a boost from Britain’s hot summer with a 2.8 percent rise in second-quarter sales but the fashion retailer does not see the warm glow lasting, sticking to forecasts that indicate little growth for the rest of the year.

“We over-performed in the second quarter as a result of the weather; we think some of that will be sales pulled forward form August,” Chief Executive Simon Wolfson said on Wednesday.

“Some of the stock we were planning to sell in August has already sold.”
He said the warm weather had been good for summer fashion, but that was not a reason in itself to change its outlook.

Shares in Next, which has been a standout performer among struggling British retailers largely due to the success of its online range, fell 6 percent in early trading.

Hargreaves Lansdown analyst George Salmon said hopes had been high that the sunny weather would have led to higher profit expectations, but Next said it would rather wait and see how the remainder of the summer goes.

“This seems fair enough, but it will have left a few wondering if the best summer in years isn’t enough to upgrade profits, then want is?” he said.

WAREHOUSE PRESSURES

Next’s positive performance followed a strong first quarter for the fashion and homewares retailer against an easy comparative, which led it to upgrade forecasts in May.

It expects full-price sales to grow by 2.2 percent for the year to January 2019, and group profit before tax to dip slightly to 717 million pounds ($939 million) at the center of its guidance.

Wolfson said the 4.5 percent rise in first-half sales implied there would be little growth in rest of the year.

“The second half is slightly bigger, so (sales) will be slightly up, but not dramatically,” he said in an interview.

Growth continued to be driven by Next’s online operation, with sales up 12.5 percent in the 12 weeks to July 28.

Sales in its retail stores fell 5.9 percent in the quarter, an acceleration of the 4.8 percent decline seen in the first quarter.

Wolfson said the online operation had suffered growing pains. “In our online warehouses, we are beginning to get close to capacity and as warehouses get close to capacity they become crowded and a little bit less efficient,” he said.

“We are investing in new capacity so we don’t expect there will be a crunch, but it does mean in the first half there has been some operating inefficiencies.”

The higher warehouse costs would largely offset a 4 million pound boost to profit from a successful clearance, Next said.