Next to reveal hit to profits from Covid but analysts predict strong recovery

Next is set to reveal that its profits were cut by more than half last year after its stores were shuttered by lockdown measures.

However, investors are banking that the company will recover strongly as restrictions continue to ease, with its share price more than doubling in the past 12 months despite the pandemic.

The retailer has consistently upgraded its profit forecasts over the past financial year as it has been buoyed by strong online sales volumes.

It is expected to post pre-tax profits of around £342 million for the year to January, compared with a £728 million profit for the previous year, when it announces its latest results on Thursday 1 April.

However, it represents a significant improvement from previous pessimistic projections, with CEO Lord Simon Wolfson warning this time last year that it might not deliver a profit at all.

Investors have got accustomed to profit upgrades in recent months and will be hopeful that next week’s update will see a more optimistic forecast for the new financial year.

Lord Wolfson

In January, Lord Wolfson said the retailer was expecting to deliver flat sales for 2021-22 with a pre-tax profit of around £670 million.

The forecast came as Next posted better-than-expected sales in the run-up to Christmas, with revenues dipping by 1.1% in the nine weeks to December 26.

Given the company’s resilience throughout the pandemic, investors may also be hopeful that it could announce a surprise dividend pay-out as part of the update.

Russ Mould, investment director at AJ Bell, said: “Next announced back in April that it would not pay an interim dividend and would be unlikely to announce a final payment next January either.

“However, 28 FTSE 100 firms that cancelled dividends have since recommenced them and some analysts may be tempted to ask whether Next might do the same at some stage.”

Analysts and investors will also be keen to hear more about how it will work with third-party brands and recently acquired businesses to help spark its recovery.

The company has bought stakes in Victoria’s Secret’s UK business and premium fashion chain Reiss in the past 12 months as it has worked to grow its brand portfolio.

The model of larger stores in retail parks with third-party concessions has worked strongly for Next in recent years and is expected to help drive a return to growth after current lockdown restrictions lift.