Next has reported signs of recovery in the second quarter of 2020 after sales picked up slightly following store reopenings, with the company now expecting profit of £195m for the year.
Full price sales in the three months to 25 July dropped 28 per cent year on year, but showed signs of improvement from the 38 per cent plunge in sales seen in the first quarter.
Online sales were up nine per cent for the quarter, up from minus 32 per cent in the first three months of 2020 before the nationwide lockdown was imposed.
The British fashion staple said full year profit before tax is now estimated at £195m for the year.
Next drew down its debt pile by around £460m, down from more than £1bn, which it said was “comfortably within the company’s cash resources of £1.6bn”.
Why it’s interesting
The fashion firm said the second quarter results were “much better than we expected” and “an improvement on the best-case scenario given in April”.
Next said online warehouse picking and despatch capacity had now returned to normal levels after its UK stores reopened following months of closure during the lockdown.
“Warehouse capacity has come back faster than we had planned, and store sales have been more robust than anticipated. As a result, our second quarter sales have been significantly ahead of our internal plan,” the group said.
The company in March decided to suspend all online shopping to protect its staff, but quickly U-turned on the decision.
Next said its cash resources have been enhanced through a combination of asset sales and the suspension of dividends and share buybacks. It now expects to significantly reduce its debt pile as a result of the measures.
However, the company’s sales are still down by a third year on year, leaving Next hesitant about its full-year guidance.
Next said there was “still much that remains uncertain and our central scenario cannot be accorded the same degree of confidence that our guidance would normally receive at this time of year”.
It added that the duration of social distancing rules, post-lockdown consumer behaviour, earnings, unemployment, and, “most importantly, whether there will be a second wave lockdown, all remain unknowable”.
Next has retuned most staff to work after initially furloughing around 88 per cent of its workforce.
The company said furlough savings and other cost cuts including for distribution and overseas travel saved Next around £77m during the coronavirus crisis.
What Next said
The group said:
“In summary, the company is in a much better position than we anticipated three months ago: consumer demand has held up better than expected and our online warehouses have achieved much higher capacities than we thought possible.
“Costs have been well controlled, and we have taken steps to ensure that our balance sheet is secure.
“Whilst much of our time has been focussed on managing the business through the pandemic, we have not lost sight of the fact our sector was already experiencing far-reaching structural changes as consumers increase their expenditure online.
“If anything, these changes are likely to accelerate as a result of the crisis. So, we have continued to move the business forward, actively investing in the systems, online capacity and business ideas that we believe will be important in a post pandemic world.”