Next warns of threat to Christmas sales

It was the last thing that investors wanted to hear before Next embarks on its crucial Christmas selling season. The fashion seller said yesterday that its trading was “extremely volatile” and warned that sales could fall again as it heads into the festive period.

The downbeat assessment took the shine off a rise in third-quarter earnings, as Next said that full-price sales had gone up by 1.3 per cent in the three months to October 29, helped mostly by its stronger Directory division, where sales were up by 13.2 per cent.

Next’s retail business found trading tougher, however, with full-price sales dropping by 7.7 per cent during the period. This continues a trend at Next, where there is a growing and marked divergence between its shops and its stronger catalogue business.

Shares in the retailer closed down more than 9 per cent at £44.71 after its bearish prediction that sales could fall by 0.3 per cent in the run-up to Christmas.

Next, which is headed by Lord Wolfson of Aspley Guise, said: “Sales performance has remained extremely volatile and is highly dependent on the seasonality of the weather. In August and September, sales were significantly up on last year, as cooler temperatures improved sales of warmer-weight stock. The change in sales trend came at precisely the same time UK temperatures became warmer than last year.”

The rise in sales in the third quarter comes after Next reported an interim profits fall of nearly 10 per cent in September.

Yesterday Next said that even though it was continuing to fix some of the problems that had affected it earlier in the year and that sales had risen in the third quarter, “week-by-week sales volatility makes it very hard to determine any underlying sales trend.

“We believe the most reliable guide to sales for the balance of the year are the full-price sales for the year to date, which are down 0.3 per cent.”

Next said although forecasting sales of -0.3 per cent for the final quarter “may seem pessimistic compared with our performance in the third quarter”, it was necessary. “As we highlighted in September, the third quarter last year was very weak, down 3.5 per cent on 2015, whereas the Christmas trading period was only down 0.4 per cent. So the comparative numbers are much more demanding in the last quarter.”

Neil Wilson, senior market analyst at ETX Capital, said: “Next better hope that British shoppers are a little less fickle than the weather, because sales performance is so volatile the firm has no idea what to expect over the vital Christmas trading period. This is a worry.”