Next raises profits forecast again as sales rise

Next has hiked its profit guidance for a second time after the recent cool weather and fewer foreign holidays for its shoppers boosted winter clothing and homewares sales.

Despite the improvement in its fortunes Simon Wolfson, Next’s chief executive, struck a cautious note about the outlook for the rest of the year as new coronavirus restrictions threaten to dampen Christmas sales.

“The recently implemented social distancing rule (the ‘rule of six’), if still in force in December, is likely to depress demand for gifts and clothing associated with traditional Christmas family get togethers,” Wolfson said.

At the outset the retailer had predicted the pandemic would have a disastrous impact on its finances, but has been surprised by the strength of the recovery seen in recent months. Shoppers have been spending on casual clothing, sportswear and sprucing up their homes with sales over the last seven weeks running 4% ahead of the same period of 2019.

Items that sold well in UK during Covid-19 lockdown

Lockdowns changed everything for retailers around the world but there was a common theme: people were in the mood for upgrading their immediate surroundings and rethinking how to spend their time at home.

Here are some of the products that have sold more in the UK since the coronavirus pandemic struck.

Sofas are usually among the bigger-ticket items that wary consumers avoid during times of economic uncertainty but, with everyone staying at home, DFS Furniture said it enjoyed a “pleasant surprise” as people spent on new furniture. Customers deprived of the ability to splash out on foreign holidays spent 9% more than before the lockdown.

The soft furnishings chain Dunelm said it had seen a similar bump in sales, thanks in part to pent-up demand. Sales were up by a quarter in August compared with 2019.

Tool shops counted as essential retailers in the UK, meaning they were among the few outlets for spending during lockdowns. The B&Q and Screwfix owner Kingfisher reported sales were up by a quarter year on year in June

The pandemic has secured video games’ pre-eminent position in the entertainment world. The consumer research company Nielsen found that UK use of video games was up by 28% by June compared with 23 March.

At the other end of the activity spectrum, government exhortations to avoid public transport and restrictions on exercise pushed up bike sales. During lockdown, demand for some equipment was five times pre-pandemic levels, Halfords reported – although analysts at Mintel said sales could actually fall this year as unemployment rises.

Lockdowns prompted a boom in home baking, leading to shortages of key ingredients such as flour, but other home grocery products were perhaps less predictable – such as the resurgence in boxed wine. The Co-op chain reported an unprecedented 300% sales uplift in boxed wines, as customers went for value – and volume – in their purchases.
Jasper Jolly

Next said it now expects to bank profits of £300m, which is more than 50% up on the £195m it had forecast back in July. The retailer, which made £728.5m profit last year, feared in April that it could post losses of up to £150m this year. In the six months to 25 July sales fell by a third to £1.3bn with the company banking a pre-tax profit of just £9m.

“The company’s sales performance through the pandemic has been more resilient than we expected,” explained Wolfson. “The scale of our online business, the breadth of our product offer, and the fact that much of our store portfolio is located out of town, have served to mitigate the worst effects of the pandemic on trade.”

The retailer also confirmed its new joint venture with the lingerie brand Victoria’s Secret, which fell into administration at the start of the summer. The brand, once renowned for its controversial fashion shows featuring models known as “angels”, gives Next access to a potentially younger consumer.

Next said the partnership, which still requires regulatory approval, means it would operate around 18 Victoria’s Secret standalone stores as well as sell the brand in its own stores and online.

“The impact of the pandemic decimated demand for new outfits but these figures show resilience during these horrendous conditions,” said Richard Lim, chief executive of Retail Economics.

“This is about weathering the storm more effectively than the competition and Next is well positioned following years of investment in their digital proposition while many others remain in survival mode.”

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