Next has said it now expects to remain in profit this year after reporting a 28% sales decline in the second quarter, much better than the fashion and homewares retailer’s best projection at the height of the coronavirus crisis in April.
The business has upgraded its annual profit guidance to an expected £195m this year and said that even in a worst-case scenario, where the high street is hit by a second lockdown, it will still manage a £15m profit. The retailer, which made almost £600m in profits last year, said in April it could post losses of up to £150m this year.
“Our experience over the last 13 weeks has given us much greater clarity on our online capabilities during lockdown and the state of consumer demand, and we are now more optimistic about the outlook for the full year than we were at the height of the pandemic,” Next said.
Full-price sales fell by 28% in the three months to 25 July, while online purchases rose 9%. The company said warehouse capacity had returned to normal levels faster than expected.
Next said sales of childrenswear, home, nightwear and sportswear, and some adult casual clothing, had sold much better than formal clothing related to work, going out, overseas holidays and large social events.
“Sales were dealt a devastating blow during the lockdown but have bounced back at an astonishing rate,” said Richard Lim, the chief executive of research consultancy Retail Economics.
“Next’s nimble response to the pandemic highlights the inherent flexibility of their operating model and strength of the business. After years of investment in their digital operation, they are well-positioned to capitalise on the seismic shift we’re witnessing towards online.”
Next said sales were down 32% since it reopened its retail stores on 15 June.
“As a general rule, our out-of-town retail parks have significantly outperformed shopping centres and high street locations,” the company said.
It said store revenues were partly impacted by the decision not to heavily promote its end-of-season sale to avoid the large queues of bargain hunters the chain normally attracts. Next also started the event on a Thursday, instead of the usual Saturday, to “reduce the risk of overcrowding”.
The company also had to limit the stock available in its online sale because of the reduced capacity of its picking staff in warehouses owing to social distancing measures.
The company said it was developing plans to further improve the capacity and efficiency of its warehouse operation to boost its online operation in the second half of the year. It intends to introduce new 24-hour working shift patterns, and better support the online warehouse operation during sales periods.
“Our online warehouses have achieved much higher capacities than we thought possible,” the company said. “While much of our time has been focused on managing the business through the pandemic, we have not lost sight of the fact our sector was already experiencing far-reaching structural changes as consumers increase their expenditure online. If anything, these changes are likely to accelerate as a result of the crisis.”
Next warned that its guidance of a “central” scenario of £195m profits could not be guaranteed, given the uncertainty surrounding the coronavirus.
“The company is in a much better position than we anticipated three months ago,” the company said. “Consumer demand has held up better than expected. [However], the duration of social distancing rules, post-lockdown consumer behaviour, earnings, unemployment and, most importantly, whether there will be a second-wave lockdown, all remain unknowable.”
Earlier this month the retailer moved to buy the UK arm of the lingerie brand Victoria’s Secret, which fell into administration last month.