Next shares soar after surprise sales rise

(c) Sky News 2018: <a href="http://news.sky.com/story/next-credits-cold-weather-for-surprise-rise-in-christmas-sales-11193852">Next shares soar after surprise sales rise</a>
 

Next (Frankfurt: 779551 - news) has reported a 1.5% rise in full-price sales over the festive season, beating its own expectations of a dismal Christmas.

The fashion and homewares retailer credited colder weather for driving the performance - perhaps giving hope that Christmas has not proved to be the damp squib for the wider sector that some commentators had feared.

Its shares were up 6.67% at the end of Wednesday, while Associated British Foods (LSE: ABF.L - news) , which owns Primark, was up by 2.09%. Marks & Spencer (Frankfurt: 534418 - news) rose by 1.4%.

Next said that while store sales fell 6.1% in the 54 days from 1 November to 24 December, online business was 13.6% up on the same period last year.

Next had given updated guidance in November that it was expecting full-price sales to dip by 0.3%. That news spooked the market at the time, with shares falling 9%.

It said the better-than-expected result meant it was now able to upgrade its annual profit guidance by £8m to a range of between £718m to £732m.

The company said where the figure would fall would depend on sales during January - the final month in its financial year.

Next cautioned that trading remained tough from the collapse in the value of the pound since the Brexit vote - but said it expected some of the "headwinds to ease" in 2018.

Its statement said: "Many of the challenges we faced last year look set to continue into the year ahead.

"Subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in our cost prices remain challenges for 2018.

"However, we believe that some of these headwinds will ease as we move through the year; we already know that cost price inflation will reduce to 2% in the first half and believe it will disappear in the second half.

"We are budgeting for full price sales next year to grow by between -2% and +4%.

"The mid-point of +1% represents a modest improvement on this year's anticipated growth of +0.3%."

George Salmon, equity analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) , said: "Next's results are a belated, but very welcome, Christmas present for investors across the retail sector.

"Colder weather may have boosted sales in the run-up to Christmas, but the real positive is the more optimistic outlook from Next's CEO Simon Wolfson.

"The long-serving CEO has an excellent reputation in the industry, so for him to say that one or two of the headwinds facing the UK's retailers should ease in the year ahead represents a significant fillip to the sector.

"He's putting his money where his mouth is too. The decision to use the expected £300m of surplus cash generated next year to fund share buybacks rather than special dividends implies management believe the shares represent good value at the moment."

Meanwhile, Poundland has said last Christmas was its most successful since it began trading in 1990, with sales growing at 5.6% for the 12 weeks to 24 December.

The performance follows confirmation from parent company Pepkor Europe that it had replaced planned investment from troubled South African company Steinhoff International with a new independent £180m loan facility to support expenditure and investment plans.