Rags don’t lead to riches as retailer’s sales dip

For a business held up by some in the City as the best that the British high street can offer, Next’s profit warning yesterday was a shock to the system.

If this is what the retail industry’s bellwether is forecasting, what, analysts were asking, does the future hold for its rivals?

As fewer shoppers visited its stores, Next’s full-price like-for-like sales fell by 0.4 per cent in the 54 days to December 24, prompting it to say that full-year profits could be lower than expected. The fall in sales was especially disappointing because Next’s performance for Christmas 2015 was weak owing to unseasonably warm weather.

Nor was the bigger picture any brighter. Lord Wolfson of Aspley Guise, the company’s chief executive, paused its long-held share buyback programme because of “exceptional levels of uncertainty in the clothing sector”. He said that shoppers had not been spending as freely as in previous years.

Next lowered its central profit guidance for the year to January from £805 million to £792 million. Although profits could rise or fall by about £7 million depending on trade this month, it is likely that they will come in at the lower end of Next’s revised range of £785 million to £825 million. It said that its poor sales showed that the “cyclical downturn” in the British clothing sector was deepening.

Lord Wolfson said: “I don’t know how anyone else has done, as we are the first [to report Christmas trading], but footfall was down at our retail stores and it seemed as if there was a lot of discounting in the run-up to Christmas. If there was more we could be doing, we would be doing it . . . Times are going to be tough.”

He added that although Next’s performance was better than the third quarter, when full-price sales fell by 3.5 per cent, there was a downward trend as end-of-season sales also fell by 7 per cent compared with last year. “This says to us that the cyclical downturn is continuing into a second year and that is why I am so bearish on the outlook for the year,” he said.

Next’s profit range for 2017-18 has been set at between £680 million and £780 million. The bottom end of this would reflect a 14 per cent fall on the current year.

The mid-market fashion chain is the first of the large clothing retailers to update on its trading over Christmas and its performance is closely watched by the City.

Lord Wolfson, a vocal Brexiteer, said that the slowdown in clothing sales would be further aggravated by the fall in the pound. The higher minimum wage, the national business rates revaluation, the apprenticeship levy and energy taxes would add about £13 million to Next’s costs this year, he said.

There were some brights spots in Next’s figures, however, as sales in its directory business rose by 5.1 per cent in the fourth quarter.

Its shares closed down 14.4 per cent at £40.85, the lowest in three and a half years.