Belfast Telegraph

Gloom hits Next as changing habits lead to profit warning

By Margaret Canning and PA

HIGH street giant Next fell over 14% on the FTSE 100 yesterday after warning that profits were expected to drop by 3.6% in the year to January 2017. The company, which has 20 stores in Northern Ireland, says it is bracing for "tougher times" in 2017 after a worse-than-expected festive performance.

The fashion and homewares giant said sales in the 54 days to December 24 fell 0.4%, defying hopes of a fourth quarter turnaround, while it posted a 7% plunge in end-of-season clearance sales.

Next said profits for the year to January 2017 were expected to fall by around 3.6% and sales and profits would remain under pressure in a "challenging" year ahead.

And it said trading woes are to deepen over the next 12 months, with profits tumbling as much as 14% in the worst case scenario in the year to January 2018.

The news hit fellow retailers including Marks & Spencer Group, which fell over 6%, and Primark owner AB Foods, which fell 3.7%.

There was no indication of how the company's Northern Ireland stores have performed.

But Next has invested heavily in its estate here.

Last month it opened an extended 43,000sq ft flagship store at the Abbey Centre in Newtownabbey.

And earlier in 2016 it unveiled a major store at Bloomfield Shopping Centre in Bangor.

The group said it was facing "exceptional levels of uncertainty" amid a consumer spending squeeze, soaring costs from the weak pound and "little visibility of the approach the UK Government will be taking to Brexit".

Chief executive Lord Simon Wolfson - a prominent Leave campaigner - said that while the Government was right not to be rushed into a Brexit plan, fears over the negotiations would heap further pressure on an embattled retail sector.

"It will take time for them and we have to be patient, but there will be uncertainty in the meantime," he said.

Next - seen as a retail bellwether - reported a 0.4% fall in overall full-price sales for the 54 days to December 24, while it also posted a 7% plunge in end-of-season clearance sales.

The company said it suffered a 3.5% fall in full-price sales across its high street stores in the quarter so far to Christmas Eve.

It saw a better performance across its Directory catalogue arm, with sales up 5.1%, but this was not enough to offset the fall across its store estate.

The group had been hoping for a fourth-quarter turnaround after a difficult 2016.

Retail analyst Donald McFetridge said it was unusual to witness Next emerging as one of the losers following the Christmas trading period.

He said he did not believe that the business's choice of stock was at fault, but that the consumer had changed.

"Like other retailers in the fashion and footwear sector, Next has suffered a bit of a bashing this season," Mr McFetridge added.

"But it has to be pointed out that - in terms of retail strategy or product/merchandise mix - they haven't really put a foot wrong.

"It's the consumer who has changed in a very volatile marketplace... 2017 looks set to be a very difficult year for retailers in the clothing and footwear categories.

"Retailers are entering a very uncertain year with Brexit, rising inflation and a weak pound all part of the equation.

"Interestingly, while Next fared poorly in their physical stores, they managed to pull off a 5.1% increase in sales over at Next Directory.

"That's symptomatic of the times and the mindsets of consumers."

Next said the end-of-year blow meant profits were expected to come in at £792m for the 12 months to January 2017, depending on January trade, compared with previous guidance of £785m to £825m.

Lord Wolfson said that 2017 was going to be "even tougher", with the group forecasting that its next year's profits could tumble to between £680m and £780m.

He said there was no immediate end in sight to the shift in spending away from clothing and footwear.

Heavy discounting among rivals close to Christmas was also affecting its January sales as fewer shoppers are hitting the high street, he added.

"I said 2016 would feel like we were walking up the down escalator; well, the escalator has just got faster," Lord Wolfson said.

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