Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Stalling online growth at Next should prove temporary
While clothing-to-homewares retailer Next (NXT) rallied after the high street bellwether reported (29 Jul) a better than feared second quarter sales fall and upgraded annual profit guidance, online sales, for so long the growth driver for Next, appeared to stall between mid-June and mid-July. This looks likely to be a short-term phenomenon.
For the second quarter to 25 July, Next’s full price sales fell 28% compared to the same period of 2019, less than half the decline of worst case scenario forecasts.
‘Warehouse capacity has come back faster than we had planned, and store sales have been more robust than anticipated,’ explained Next. ‘As a result, our second quarter sales have been significantly ahead of our internal plan.’
Trading through the quarter highlighted the impact from the store lockdown which started to ease from mid-June onwards, with like-for-like sales in reopened stores down 32% since the reopening.
Online sales grew a modest 9%, though they were broadly flat from the week commencing 14 June to 21 June, actually fell in the subsequent fortnight to 12 July, before returning to their upwards trajectory.
Next’s shop-based sales have accounted for a much greater proportion of overall revenue since June and drove overall sales in July.
This trend tallies with the latest UK retail sales data from the Office for National Statistics (ONS), which showed sales surging back almost to pre-coronavirus lockdown levels in June as non-essential stores reopened. The ONS data highlighted an increasing number of shoppers visiting stores in person in June, with the proportion of online spending reducing to 31.8%.
This trend reflected a spike as shoppers ventured out from lockdown to spend in physical stores. From here, the online channel should benefit if consumers bridle at wearing masks in shops and tire of the strictures of social distancing measures.
Shore Capital reckons Next will be ‘a retail survivor given its strong online presence and strength in its balance sheet given its historic cash generation’, whereas Numis Securities said the second quarter confirmed its hopes that ‘a swifter recovery in the apparel market is set to translate into a more robust year.
‘Updated guidance leaves further room for upside surprise, depending on the trajectory of Covid-19, but should help underpin near-term momentum.’