July 31, 2019 / 6:21 AM / 17 days ago

Next shares hit highest in a year after results defy UK retail gloom

LONDON (Reuters) - Fashion chain Next (NXT.L) shrugged off Britain’s retail gloom on Wednesday with a surprise 4% rise in full-price sales, helping drive its shares to their highest in a year.

FILE PHOTO: Shoppers pass a branch of Next retail in London, Britain, September 15, 2016. REUTERS/Toby Melville/File Photo

The company raised its outlook after marking down less stock than previously in its popular end-of-season sale and saw stronger demand in July for newer ranges, with new arrivals including maxi dresses and graphic sweatshirts.

Chief Executive Simon Wolfson said full-price sales in its first quarter through July were boosted by not clearing as much surplus stock in its half-price sale, one of the most eagerly awaited in Britain’s retail sector.

Next, which vies with rivals including Marks & Spencer (MKS.L) for the position of Britain’s top clothing retailer, had predicted a 0.5% fall in full-price sales, reflecting a tough comparison with last year when the weather was exceptionally hot.

However the company reported a 3% rise in May and June, which Wolfson said was the best indicator of underlying demand, and a strong rise of 6.8% in July.

Wolfson said the results, which bucked the weak trend seen elsewhere in UK retail, were better than expected, although all of the company’s sales growth came online.

“We have improved the stock management in our stores, so have really focused on getting the right amount of stock to the right stores,” he told Reuters in an interview.

“We cut down the amount of deliveries to our stores last year, which in hindsight was a mistake, we have reinstated those deliveries which has definitely helped,” Wolfson added.

Liberum analyst Wayne Brown, who has a “buy” recommendation on Next, said the company was clearly taking market share. “Stock levels are very much under control and this has likely led to gross margin improvements.”

Shares of Next were up 9.1% by 0928 GMT after hitting their highest since July 2018.

OUTPERFORMING RIVALS

Next, which trades from more than 500 stores in Britain and Ireland, about 200 stores in 40 other countries and its Directory online business, is outperforming rivals.

Official UK data for May showed cold weather prompted the biggest drop in British retail sales this year as shoppers delayed buying summer clothes.

Even discounter Primark (part of AB Foods (ABF.L)) had highlighted weaker trading in May followed by a stronger June.

Wolfson said he had seen no evidence of consumer spending being hit by worries over Brexit.

“The thing that we think makes the most difference to the consumer environment is what happens with earnings, and average weekly earnings are still growing significantly faster than inflation, which we think is a positive sign,” he said.

Next said it now expected full-price sales for the year to rise 3.6% against its earlier 1.7% forecast, and profit would be about 725 million pounds ($881.6 million), 10 million pounds higher than its previous guidance.

Editing by Costas Pitas and David Holmes

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