Next lifts profit guidance as online sales soar

Next, which operates nearly 500 stores, predicted the shift to online sales during the coronavirus pandemic will continue and said it accelerated part of its planned capital expenditure in the online business, spending £121m on warehousing and systems.

Shares in the retailer jumped on the back of news that online sales from the beginning of February were “stronger than expected” and up more than 60% on two years ago.

Next also said it expected to post a pre-tax profit of £700m for the current financial year, ahead of its previous target of £670m.

However, chairman Michael Roney confirmed: “Given the continuing uncertainty around when our stores will reopen, no final dividend is proposed for 2020/21 and our share buyback programme remains suspended.

"We remain committed to returning capital to shareholders in the long term and will review our position later in the year when we have better visibility of our trade once our stores reopen.”

The high street retailer’s chief executive, Simon Wolfson, said that online sales counted for more than half of the group’s turnover going into the pandemic which boosted its resilience when stores had to close.

Lord Wolfson said: “The scale of our online business and the breadth of its customer base, both in the UK and overseas, meant we were able to pick up a significant amount of the business lost in our stores by servicing customers online.

“The diversity of our product offer, across the Next brand and through Label, has proved an invaluable asset during the pandemic.”

However, Lord Wolfson said “the building of a diverse, profitable, and well-financed business, along with the development of new online routes to market, has not been accidental”.

He added: “It has come as a result of a conscious and consistent effort to adapt and change the business, and to maximise the opportunities presented by our online infrastructure, product skills, supplier base, and partnerships.”

As non-essential retail prepares to reopen after the most recent lockdown, he described fashion as “risky and volatile” but noted that Next, long considered a bellwether of the high street, expects to generate £560m from online sales and a loss of £20m from its stores in the coming year.

Lord Wolfson stressed the importance of bricks-and-mortar stores despite the rise in e-commerce.

“The longer the pandemic encourages online shopping, the more likely it is that customers will keep shopping that way. What might start as an experiment or lockdown necessity, over time, becomes increasingly normal and convenient.

"So, our base case for the year ahead is that store sales will decline, on a like-for-like basis, by 20%.”

Last year, the business closed 18 branches and renegotiated leases in 62 stores, achieving an average reduction in rent of 58%.

Next also introduced a model that sees it hosting the online operations for other brands, including Laura Ashley, Victoria’s Secret and, most recently, Reiss. Lord Wolfson said: “Following the money can be uncomfortable because new ideas often pose a threat to existing businesses. The decisions to compete with ourselves through selling third-party brands and, more recently, the opening up of our sourcing skills to other brands through licensing, were not entirely uncontroversial.

“Our view is simple: there is nowhere to hide on the internet, and we are better to collaborate with other brands to our mutual benefit than cling on to past advantages in the vain hope our customers will not find the competition. And, of course, the broader our product offer, the more relevant our website becomes to an increasing number of customers.”

Lord Wolfson was optimistic that “the consumer economy, at least in the short term, will be healthier than many presume”. He said: “It seems likely that a combination of pent-up demand along with a healthy overall increase in personal savings will serve to keep the consumer economy moving forward.”

Shares in Next closed at 8,114p.