Next beats best-case scenario as online sales pick up

Clothes retailer Next has said the second quarter of the year was much better than it had expected as full-price sales dropped 28%.

The fall was better than the best-case scenario that Next had forecast in April, and comes after online sales rose 9% over the three months, offsetting a drop in shop sales even after they reopened.

It was a big swing from the one-third drop in online sales in the three months to April 25.

Next told shareholders on Wednesday morning: “Our experience over the last 13 weeks has given us much greater clarity on our online capabilities during lockdown and the state of consumer demand, and we are now more optimistic about the outlook for the full year than we were at the height of the pandemic,”

In April, the company said its best-case scenario for the year involved a 30% drop in full-price sales. Its updated best case predicts an 18% drop.

The news sent shares up 9% to 5,744p.

Julie Palmer, a partner at restructuring expert Begbies Traynor, said: “Next is a pioneer for the retail sector and has bucked the high street trend and seen sales start to climb against the grain of retail decline.

“But the fall-out from the coronavirus is the company’s latest test and chief executive Simon Wolfson will be wary that the challenges are only just beginning.”

The business is now estimating a £195 million pre-tax profit, while it will pay off £460 million of its £1.1 billion debt.

But, while online sales performed better in the second quarter than it had this time last year, sales in shops dropped by 72% as the pandemic forced them to close.

Even since they reopened, like-for-like sales in the shops have dropped by 32%, Next said.

Ms Palmer added: “The retailer has invested heavily in its digital offering, which has kept the business on solid ground, countering the drop in physical store sales.

“However, with low footfalls, the company will need to remain resilient and innovate to successfully navigate through the current uncertainty and attract consumers.

“It may need to follow the trend of supermarkets and shift high street staff to delivery and warehouse teams in order to cater for the greater demand and make its offering work during this coronavirus crisis.”