By Kristy Dorsey

Retail giant Next is bracing for a “very significant” drop in trading for the duration of the coronavirus pandemic, but has assured investors that it can stay afloat even if it loses

£1 billion worth of sales this year.

Shop and online sales will both suffer significant losses as people “do not buy a new outfit to stay at home”, chief executive Simon Wolfson said, though online sales are likely to fare better. Some product areas such as homeware and children’s clothing could be less affected than adult clothing lines.

“When the pandemic first appeared in China, we assumed that the threat was to our supply chain,” Lord Wolfson said. “It is now very clear that the risk to demand is by far the greatest challenge we face and we need to prepare for a significant downturn in sales for the duration of the pandemic.

“We have no experience of a similar crisis so there is no way of predicting the extent that the effect coronavirus will have on our retail and

online sales.”

His stark assessment came as Next released its results for the financial year to the end of January, which showed a 3.3% rise in group sales to £4.36bn and a marginal increase in profits to

£728.5 million.

The final week of January saw Next’s sales rise by 2.1%, but in the week beginning March 8 – when the pandemic began taking hold in the UK – sales fell by 8.8%. Between Sunday and Tuesday of this week, the decline accelerated to a 30% drop in sales.

The company has scrapped its final dividend for 2019 and instead intends to declare a second interim dividend

in June.

However, the option to suspend rather than delay dividend payments remains a possibility should the company need to conserve cash.

Other potential cash saving measures include the suspension of the share buyback programme, the delay of discretionary capital expenditure, the sale and leaseback of a warehouse, part-securitisation of customer receivables, the redemption of a loan to the Employee Share Ownership

Trust, and a deferral of the

August dividend.

Next stressed that it currently believes it “unlikely” the company will need to pull all of those levers. But if it does, these combined actions would retain an additional £835m of cash within the business.

“The conclusion of our stress test is that the business could comfortably sustain the loss of more than £1bn (25%) of annual full price sales, without exceeding our current bond and bank facilities,” Lord Wolfson said. “This accounts for the business rates holiday announced by Government but excludes any use of Government lending or any measures that may be introduced to help with wages

during closure.”

He has joined others in calling on the Government to follow the lead of countries like France and Germany by helping struggling firms to cover the costs of employee wages during any prolonged closure period. The prominent Brexiter admitted such a move would be expensive, but less so than the domino effect of redundancies and soaring unemployment.

Stepping back from the current crisis, Lord Wolfson said the underlying structural changes within the retail sector are not on hold, and it was indeed possible that the pandemic may accelerate the transition to online shopping. The company – which to date has been held up as a successful example of the transition from bricks to clicks – will therefore continue with efforts to “transform every part of

our business”.

The full-year group profit of £728.5m was just ahead of the £727m guidance given in its last trading statement, driven by better-then-expected full-price sales in January.

Revenue growth was driven by an 11.9% increase in online sales, which rose to £2.15bn. In-store sales were down by 5.3% to £1.85bn.

Earnings per share were up by 5.6% on the previous year, and Next cut its net debt from £94m to £16m.