UK fashion retail giant Next issued a Q2 trading update on Thursday and showed that its seemingly unstoppable progress is continuing. In the 13 weeks to 26 July, Next full-price sales rose 10.5% year on year.
As usual, it also showed that earlier guidance was excessively cautious, the firm having predicted 6.5% growth with expectations of sales £49 million lower than it actually achieved.
For Next ‘full-price sales’ include items sold in its Retail division (that is its stores) and Online, plus Next Finance interest income. They exclude Sale events, Clearance, Total Platform commission and sales from subsidiaries.
On this basis, it said sales “over-performed in both the UK and overseas”. But this wasn’t just down to its own efforts. The company cited better than expected weather and trading disruption at a major competitor” for the UK success. That major rival was clearly M&S, which suffered huge disruption following the cyberattack that crippled its webstore.
Overseas, the International division prospered as its “digital marketing proved more effective than anticipated, enabling us to increase profitable marketing expenditure”.
Looking at the performance in more detail, UK Online sales for the Next brand increased 9% in the second quarter and 6.8% in the first half overall. UK Online sales for its Label operation rose 10.1% in Q2 and 12.6% in H1. The combination of these two meant that overall Online Q2 sales were up 9.5% and H1 sales were up 9.2%.
UK Retail sales rose 5.6% in Q2 and 5.4% in H1, showing that its physical stores continued to attract footfall and bringing total UK sales when Online is added in to a 7.8% Q2 rise and a 7.6% H1 increase.
Online International sales rose 26.4% in the quarter and 28.1% in the half with total full-price product sales across the UK and abroad rising 11.1% in Q2 and 11.6% in H1.
It all means the firm is increasing its guidance for full-price sales in the second half from 3.5% to 4.5%. This adds a further £27 million of full-price sales to its forecast. The increase in sales in Q2, along with that improved guidance for H2, also means it’s increasing full-year guidance for profit before tax by £25 million to £1.105 billion.
But it expects UK sales including Online and Retail to rise only 1.9% in the second half while International online sales should increase 19.4% (for a full-year total of 23.8%). That means total product sales during the second half should be up 4.8% and will be up 8% for the full year.
The extreme caution as far as UK sales are concerned is due to the effects of earlier National Insurance contribution changes continuing to filter through into the economy and denting consumer spending. It’s also down to strong comparative numbers in the second half of 2024. And of course, that unexpected boost from the UK heatwave and from the problems at M&S won’t impact the second half.
Internationally though, it had been originally expecting a second half rise of 13.1% so the latest guidance for a 19.4% jump is a significant change. That’s because it believes it can invest more in profitable digital marking than it had originally planned.
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