NEXT today struck a note of optimism for the retail sector when it said its strong online offering and the out-of-town location of many of its stores helped it cope with the pandemic far better than it feared.
The retailer led by Lord Wolfson guided that profits for the year will be about £300 million, far above the £195 million suggested in July’s trading statement.
Sales in the last seven weeks are up 4%, thanks to “recent cool weather and fewer overseas holidays”.
Online sales were already more than half of Next’s business even before Covid-19 struck. Lockdown habits “have stuck”, said the retailer.
“It was a stroke of good fortune that the product areas that did well, also had much lower rates of return. So every item dispatched was less likely to come back and more likely to convert into a sale,” said the statement to the stock market.
Wolfson, 52, said: “The pandemic has been expensive and miserable. But some good has come from the upheaval. It is remarkable what can be learnt from shutting down your entire operation and slowly, department by department, store by store, warehouse by warehouse, bringing it back to life.”
Nevertheless, the “lack of spontaneous conversations between colleagues” working from home remains a problem.
Next is carrying debt of £765 million but notes that it is owed £1 billion by customers shopping on credit.
The company has just linked up with Victoria’s Secret to form a joint venture which will sell concessions in some Next stores.
In the six months to 25 July sales fell by a third to £1.3 billion with the company banking a pre-tax profit of just £9 million. That is far better than expected just a few months ago.
Wolfson says he is “pleasantly surprised” at the signs of optimism in the business.
Steve Clayton, a fund manager at Hargreaves Lansdown, said: “We hold Next in our Select UK funds because we think it is far and away the best managed retail business in the UK. Crucially, Next was already earning most of its profits from its online business before the pandemic struck. Their warehouses had to close down briefly to be made Covid-safe, but then Next’s online business came out roaring and group sales have recently been running ahead of last year, even though sales in the High Street stores are still down.
Next is now positioned to seize the opportunities created by its competitors’ difficulties.”