NEXT Q4 results: Industry experts offer their reaction
NEXT has released its financial results for the fourth quarter ending 30 December 2022, revealing a 4.8% increase in full price sales and raising its full-year profit guidance.
The retailer reported that both online and retail store sales "exceeded full price sales expectations", with retail being "particularly strong" and rising 12.5% compared to last year.
Markdown stock and sales jumped 60%, mainly as a result of the "exceptionally low surplus stock levels" last year. The business confirmed it is planning for this overstock to be corrected in the year ahead.
Shares in the group jumped more than 7% as NEXT said it now expects full year sales of £4.6 billion, up 6.9% on the year before. The company also expects pre-tax profits to rise 4.5% to £860 million, an increase the £840 million it pencilled in last November.
However, the retailer emphasised that the year to January 2024 would be tougher as the cost-of-living crisis bites, guiding for pre-tax profits to fall 7.6% to £795 million on sales 1.5% lower.
NEXT said it remains “cautious in our outlook for the year ahead”, pointing to consumer demand being impacted by the cost-of-living and energy crisis, rising mortgage costs and its own price hikes. Further price rises are also expected and set to peak at about 8% in the spring, but will ease back thereafter to “no more than” 6% in the second half as currency pressures and freight costs decline.
TheIndustry.fashion has curated commentary from a range of industry experts and analysts to gauge their reaction to the numbers and gain insight into how the future looks for the British high street retailer.
Lord Simon Wolfson, CEO of NEXT:
Lord Wolfson said festive trading was given a boost by pent-up demand after an unseasonably warm autumn. But he added consumer spending was also better than predicted in the face of painful cost pressures.
He said: “Employment has held up very strongly – that’s unusual in a recession. That has given people the confidence to spend through the Christmas period.” He said shoppers were also dipping into savings built up in the pandemic, whilst also keeping a tight rein on their energy usage to try and keep bills down.
However, he cautioned: “Next year is going to be a difficult year.” Prices, which are already rising by about 8%, will remain at the same level into spring and summer, but fall back thereafter with further declines “almost certain” in the early part of 2024.
“There is going to be continued pressure on prices, but we can see light at the end of the tunnel.”
Charlie Huggins, Head of Equities at Wealth Club:
"This is another impressive performance from the bellwether of the UK High Street, reinforcing NEXT's reputation as one of the best run UK retailers. The group benefited from a cold snap in December, which has boosted demand for winter clothing, as well as the absence of pandemic restrictions, aiding store performance. Nevertheless, this shouldn't take away from NEXT's stellar execution. Many other retailers have struggled in the current environment, but NEXT's proposition is clearly resonating with the UK consumer.
"Looking ahead to the next year, the environment is set to get tougher still. NEXT's sales are expected to fall modestly, with profits down close to 10%, as cost pressures take their toll. That said, this outlook is not as bad as it could have been at the time of the disastrous mini-budget, when sterling was in the doldrums. NEXT expects cost inflation to peak at around 8% in the spring summer season before coming down. That looks a lot more manageable than it did a few months ago, largely reflecting the recovery of sterling (80% of NEXT's purchases are in US dollars).
"NEXT, and the rest of UK retail, are still facing a very difficult economy in 2023. But if the recovery in sterling is sustained, it will certainly provide some succour. And even if it doesn't, NEXT looks better positioned than most retailers to weather the storm."
Tara Flynn, Co-founder of Choose Wisely:
“NEXT's admission that they’ll need to pass on price rises of up to 8% to their customers won’t shock consumers, but it may force shoppers to change their buying habits. Consumers are experiencing price rises everywhere, but their wages simply aren’t keeping up. With energy bill help being reduced in April and food more expensive than ever, shoppers will be forced to rethink how they purchase non-essential items of clothing.
“In December, second-hand clothing websites and charity shops saw a rise in demand for pre-worn party clothes - a trend I predict will continue throughout this year. Buying second-hand goods is no longer shrouded in snobbery as consumers looking for a more sustainable lifestyle make it the norm."
Russ Mould, Investment Director at AJ Bell:
“"The bricks and mortar retail channel is far from dead, judging by the latest round of retail sector trading updates. We’re now many months into a severe cost-of-living crisis, yet the latest figures would suggest that certain retailers can still draw in the crowds if the proposition is seen to be good value for money.
“Next isn’t necessarily the cheapest fashion or home retailer, but its products are considered good quality and something that will last.
“Next, B&M and Greggs are united by having a presence on retail parks where business has been better than expected in general. Widespread train strikes will have prevented a lot of people from going to city centre shops, which means retail parks with their plentiful parking spaces have been the preferred alternative shopping destination.
“None of these three companies are blind to the fact that consumers are still under significant financial pressure, yet if they’ve been able to successfully navigate a tough end to 2022, there is good reason to suggest they could continue to keep their chins up as we move through 2023.”
Read TheIndustry.fashion's In History: A timeline of NEXT - over 40 years of a British fashion icon.