Next warning of toughest year since 2008 chills sector
LONDON – Next, Britain’s most successful clothing retailer of the last decade, warned that 2016 could be its toughest year since 2008 as the outlook for consumer spending has deteriorated, sending shares across the sector sharply lower.
Next, which trades from over 500 shops in Britain and Ireland and about 200 in more than 40 countries overseas, lowered its sales and profit guidance for the second time in three months on Thursday, forecasting 2016-17 profit could fall by 4.5 percent in its worst case scenario of a 1 percent sales decline.
Its shares slumped by as much as 13.4 percent. Those of rivals Marks & Spencer, Debenhams and Primark-owner Associated British Foods fell 4.3 percent, 3.1 percent and 4.1 percent respectively.
While Next blamed a worsening economic environment for the downgrade, analysts said it also reflected company specific problems. These include the maturity of its Directory catalogue and Internet business and competition from the likes of Inditex, H&M and pure online players such as ASOS.
“It is also in part due to Next’s mea culpa on not keeping pace with some omni-channel development and other issues,” said analysts at Jefferies.
Next has moved to address these issues, outlining plans to revamp Directory by improving its website and mobile offer and developing its credit business. It is also targeting better clothing design, with improved quality along with a quicker response to new trends.
NO BREXIT IMPACT
“The year ahead may well be the toughest we have faced since 2008,” said Next Chief Executive Simon Wolfson.
“The outlook for consumer spending does not look as benign as it was at this time last year.”
Wolfson noted growth in Britons’ real earnings slowed markedly from September last year, while growth in output across services, manufacturing and construction all decelerated throughout the course of 2015.
Figures published on Thursday showed UK retail sales volumes dropped 0.4 percent last month after a 2.3 percent rise in January, partly reflecting weak demand for new season clothes.
Wolfson also believes there may be a cyclical move away from spending on clothing back into areas that suffered the most during the economic downturn, such as eating out and travel.
But Wolfson, a member of Britain’s upper house of parliament and a prominent supporter of the ruling Conservative Party, said he did not believe uncertainty surrounding the outcome of a June 23 vote on Britain remaining in the EU was influencing consumer spending.
“I don’t think anybody consciously says ‘look I’m not going to buy that dress because we might leave the EU’. My instinct is that it’s not affecting consumer sentiment,” he told Reuters. Wolfson favours Brexit but says Next is completely neutral on the matter.
Next met guidance with a 5 percent rise in pretax profit of 821.3 million pounds in the year to end-January 2016. Sales rose 3 percent to 4.15 billion pounds and the dividend was increased 5.3 percent to 158 pence. Sales guidance for the 2016-17 year was cut to a range of down 1 percent to up 4 percent from previous guidance of growth of 1 to 6 percent. Profit was forecast at down 4.5 percent to up 4.5 percent. -Reuters