High street titan Next has warned coronavirus will produce a “very significant” sales blow in the coming year as travel restrictions dramatically damage the retail sector.
Next, considered an economic bellwether, said it is now preparing for a “significant downturn” in 2020.
“When the pandemic first appeared in China, we assumed that the threat was to our supply chain,” Next 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.”
The retailer warned demand will be hardest hit from the coronavirus outbreak. While online sales will outperform high street store sales, Next’s digital revenue will also suffer.
“People do not buy a new outfit to stay at home,” Next pointed out.
The high street retailer’s shares fell 3.8 per cent to 3,704p in early FTSE trading.
High levels of uncertainty
However, Next said it could not predict how badly retail and online revenue will fall.
It is not yet clear how widespread the virus will be at any one time, how long the pandemic will last and what the medium to long term effect of this pandemic will be on consumer behaviour.
Next’s coronavirus warning arrived as fashion house Burberry warned of a 50 per cent drop in sales over the outbreak. And other high street shops have been forced to issue warnings too.
That has led the government to suspend business rates for all retailers as part of measures to alleviate the outbreak’s impact.
Next’s warning came as it revealed full year results for the 12 months to the end of January.
Profit before tax inched up 0.8 per cent to £728.5m in 2019 compared to 2018, Next said. That beat January guidance of £727m thanks to stronger full price sales that month.
And total sales rose 3.3 per cent year on year to £4.36bn, or 2.4 per cent to £4.27bn on a reported basis. But an 11.3 per cent jump in online sales masked a 5.3 per cent decline in high street store sales to £1.85bn.
Earnings per share climbed seven per cent to 472.4p while net debt sank from £94m in January 2019 to £16m at the start of 2020.
Next has also scrapped its dividend over coronavirus.
Why it’s interesting
Next chose to skip a final dividend due to the uncertainty for 2020 earnings due to the Covid-19 outbreak in the UK.
A total of 2,626 people are infected in Britain, while more than 100 Brits have died from the virus.
Highlighting the unpredictable impact on its business, the company said it would scrap a final dividend for 2019. Instead “the board currently intends to declare a second interim dividend in June”.
Next also slashed its spending plans for 2020. Instead of spending £145m, Next will lay out £100m, including warehouse investment of £55m. And it will also spend £35m on its stores portfolio.
What Next said
On coronavirus, the company said:
It would be easy for us to talk or think of nothing else, but that would be a mistake. Our sector continues to experience profound and lasting structural changes ands these changes are not on hold.
Indeed it is possible that the pandemic may accelerate the transition to online shopping. So we cannot afford to neglect our continuing efforts to transform every part of our business.