TIDMNXT
RNS Number : 7298L
Next PLC
05 January 2023
Trading Statement - 5 January 2023
SUMMARY
Sales in the Christmas period have been better than we
anticipated.
-- In the nine weeks to 30 December full price sales(1) were
up +4.8% versus last year. This was c.GBP66m better than
our previous guidance of -2.0% for the period.
-- We have increased our full year profit before tax guidance
by GBP20m to GBP860m, up +4.5% versus last year.
-- Based on this profit guidance, Earnings Per Share (EPS)
would be 567.2p, up +6.9% versus last year.
-- We remain cautious in our outlook for the year ahead. Initial
guidance for the year ending January 2024 is for full price
sales to be down -1.5% and profit before tax to be GBP795m,
down -7.6% versus the current year.
(1) Full price sales are total sales excluding VAT, less items
sold in our Sale events, our Clearance operations and through Total
Platform. These are not statutory sales. For clarity, the sales
reported in this Trading Statement also exclude Joules, in which we
acquired a 74% equity stake during November 2022.
This statement is divided into two parts. Part One focuses on
the current year, Part Two gives sales and profit guidance for the
year ahead.
PART 1: THE CURRENT YEAR
Full Price Sales to 30 December 2022
The table below sets out the full price sales performance for
the nine weeks to 30 December and for the second half to 30
December.
Both Online and Retail exceeded our full price sales
expectations, with Retail being particularly strong. We think that
we underestimated the negative effect COVID was having on our
Retail sales last year. We may have also underestimated the effect
improved stock levels would have on both businesses (stock levels
were exceptionally low last year as a result of widespread supply
chain disruption).
Full price sales (VAT exclusive) Q4 Second half
versus 2021 to 30 December to 30 December
================================= =============== ===============
Online +0.2% - 0.9%
Retail +12.5% +7.5%
=============== ===============
Total Product full price sales +4.7% +2.2%
Finance interest income +5.8% +7.9%
=============== ===============
Total full price sales including
interest income +4.8% +2.5%
The chart below sets out the Q4 weekly performance versus last
year. The green line gives the cumulative performance for the
quarter. The graph demonstrates the dramatic boost to sales we
experienced when the weather turned cold in December (please note:
we have combined the last two weeks of the period in the graph to
eliminate the effect of the timing of Christmas Day and bank
holidays). We believe that the strength of demand for cold weather
products in December was partly a result of pent-up demand from an
unusually warm October and November.
End-of-Season Sale
The end-of-season Sale is progressing well and clearance rates
are ahead of our expectations.
Markdown stock and sales were much higher than last year, mainly
as a result of the exceptionally low surplus stock levels last
year. The table below sets out our stock for Sale versus last year
and three years ago. For comparison we have also shown the full
price sales growth for the comparable period. It can be seen that
growth in Sale stock versus three years ago is more in line with
the increase in sales, though still somewhat higher than our ideal.
We are planning for this overstock to be corrected in the year
ahead.
Versus three years
Versus last year ago
======================= ================ ==================
SALE STOCK +60% +31%
Full price SALES Q4 to
30 Dec +4.8% +24%
================ ==================
Sales and Profit Guidance for the Current Year
We have increased our pre-tax profit guidance for the full year
by +GBP20m to GBP860m reflecting better than expected full price
sales in the period. This forecast is based on full price sales in
January being broadly flat versus last year. Our revised guidance
is set out below, along with our previous guidance given in
November.
Guidance for the full year Full year Versus November Versus
2022/23 guidance 2021/22 guidance 2021/22
=========================== ========= ======== ========= ========
Full year full price sales GBP4.6bn +6.9% GBP4.5bn +5.2%
Group profit before tax GBP860m +4.5% GBP840m +2.1%
Earnings Per Share (Basic) 567.2p +6.9% 554.5p +4.5%
========= ======== ========= ========
NOTE: Our current guidance is almost exactly in line with the
sales and profit guidance we gave in January 2022. At that time,
our forecast was considered by many to be overly cautious, it now
appears it was very realistic. We mention this only because we are
concerned some might look at our forecast for 2023 and again assume
we are being over cautious.
PART 2: THE YEAR AHEAD
Full Price Sales Forecast
Forecasting for the year ahead at this early stage comes with a
high level of uncertainty. We have assumed that full price sales
for the year ending January 2024 will be down -1.5% against the
current year. Underlying product sales are expected to be down
-2.2%. Interest income, from our consumer Finance business, is
expected to contribute +0.7% growth to sales. This is mainly as a
result of consumer balances continuing their return to pre-pandemic
levels.
Some might think this forecast is overly cautious in the context
of our performance in the second half of this year. However, we
believe that the following factors are likely to dampen demand:
-- Inflation in essential goods, particularly energy
-- Rising mortgage costs as consumers' fixed interest rate
deals expire
-- Continued price inflation in our own products (see below)
On a more positive note, we expect employment to remain strong
so are not anticipating a collapse in demand or any increase in bad
debt over and above our current provisions.
Price Inflation
Outlook for Cost Price Inflation
We now expect the cost price inflation on like-for-like goods to
peak at around 8% in the Spring Summer season. However, we expect
inflation to be no more than 6% in the second half. This Autumn
Winter figure is only an estimate at this stage, as we are still
negotiating prices; but it does appear that cost pressures are now
easing through a combination of reducing freight costs and lower
factory gate (dollar) prices.
Factory gate prices for the second half are benefiting from:
-- The decline in the price of key commodities, for example,
cotton and polyester.
-- Increasing factory capacities resulting from a slowdown
in global demand. (Even if consumers maintain their cash
spending, inflation in selling prices will reduce the amount
of units they buy, thus reducing factory production.)
-- New sources of supply.
-- The devaluation of some local currencies against the dollar.
Much of the increase in next year's prices are the result of the
devaluation of the pound against the dollar. Eighty percent of our
contracts are negotiated in dollars so the devaluation of the pound
has had a significant impact on our prices. The table below sets
out the dollar rates we achieved this year and those we have locked
in for the year ahead, along with the increase in the cost of
dollars.
Costing rate (GBP/$) Costing rate (GBP/$)
2023/24 2022/23
================ ===================== =====================
Spring Summer 1.27 1.39(2)
Autumn Winter 1.14 1.36
===================== =====================
(2) Please note that this number differs from the 1.37 quoted in
the analysts presentation in September 2022. The 1.39 is the
correct final number.
Looking further ahead, it appears likely that the recovery of
the pound against the dollar (if it persists) and continuing
downward pressure on factory gate prices, means that inflation is
likely to be lower again in the Spring of 2024.
Selling Prices
We intend to maintain our bought-in(3) gross margin percentage.
So inflation in our like-for-like selling prices will be broadly in
line with the increase in cost prices as set out in the table
below:
Spring & Summer Autumn & Winter
2023/24 2023/24
========================================== =============== ===============
Selling price inflation in like-for-like
goods (e) +8% +6%
=============== ===============
(3) The difference between the landed cost price of our goods
and their original (full price) selling price (VAT ex.).
UK Cost Base Inflation
In addition to the increases in the cost of our goods, we are
also experiencing increases in UK operating costs, mainly as a
result of UK wage inflation and energy costs. We have fully bought
our electricity requirement for the year ending January 2024 at
rates significantly higher than the current year.
Profit Guidance for the Year Ahead
Profit Walk Forward from 2022/23 to 2023/24
The main changes in profit between the current financial year
and next year are summarised below:
GBPm
====================================== ==== =====
Profit before tax 2022/23 (e) 860
Loss of profit from -1.5% (GBP69m)
decline in full price sales - 23
Cost increases
Wage inflation (including third-party
wages, e.g. couriers) - 67
Electricity and gas - 28
Spend on Technology - 18
Other - 6
Total cost increases - 119
Cost savings
Operational savings from a reduction
in units sold +30
Occupancy cost savings (inc. GBP10m
Business Rates) +22
Markdown and clearance +25
Total cost savings +77
==== =====
Profit before tax 2023/24 (e) 795
Buybacks, Corporation Tax and Earnings Per Share Guidance
For the purpose of this guidance we have estimated that, after
paying ordinary dividends, we will return GBP220m of surplus
cash(4) to shareholders by way of share buybacks in the year ahead
(though this figure will be lower if we make further investments).
We estimate that these buybacks, along with those in the current
year, will boost pre-tax Earnings Per Share by +2.7%. However, this
enhancement is more than offset by the increase in the Corporation
Tax rate, which reduces EPS by -6.8%.
(4) Surplus cash refers to cash flow after ordinary dividends,
interest, tax, capex and funding any increase in our customer
receivables.
Our guidance for sales, profit, pre-tax EPS and post-tax EPS
along with our expected effective tax rates are set out in the
table below:
Full year
Guidance for the full year 2023/24 guidance Versus 2022/23
=========================================== ========= ==============
Full year full price sales GBP4.5bn - 1.5%
Group profit before tax GBP795m - 7.6%
Pre-Tax Earnings Per Share (Basic) 659.3p - 4.9%
Effective tax rate (new 25% rate effective
from April) 24.0% up from 18.2%
Post Tax Earnings Per Share (Basic) 501.0p - 11.7%
========= ==============
FULL YEAR RESULTS ANNOUNCEMENT
We are scheduled to announce our results for the full year
ending January 2023 on Wednesday 29 March 2023.
Forward Looking Statements
Certain statements in this Trading Update are forward looking
statements. These statements may contain the words "anticipate",
"believe", "intend", "aim", "expects", "will", or words of similar
meaning. By their nature, forward looking statements involve risks,
uncertainties or assumptions that could cause actual results or
events to differ materially from those expressed or implied by
those statements. As such, undue reliance should not be placed on
forward looking statements. Except as required by applicable law or
regulation, NEXT plc disclaims any obligation or undertaking to
update these statements to reflect events occurring after the date
these statements were published.
Date: Embargoed until 07:00 hrs, Thursday 5 January 2023
Contacts: Amanda James, Group Finance Director Tel: 0333 777
(analyst calls) 8888
Alistair Mackinnon-Musson, Rowbell Tel: 020 7717
PR 5239
Photographs: https://www.nextplc.co.uk/media/image-gallery/campaign-images
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END
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