Next Deals Blow to U.K. Retailers as Outlook Turns BleakBy
Company ‘preparing for tougher times’ as spending set to dip
Shares fall as much as 14%, steepest drop since Brexit vote
U.K. clothing retailer Next Plc forecast another tough year after a disappointing Christmas, sending its shares plummeting and dealing a blow to the industry at the start of the holiday reporting season.
Pretax profit for the year through January 2018 will be in a range of 680 million pounds ($834 million) to 780 million pounds, the company said Wednesday, below estimates of about 784 million pounds. Next also cut its forecast for the year ending this month, pushing the stock down about 10 percent and heading for its lowest close in almost four years.
The reduced guidance from one of the industry’s bellwethers is likely to deepen concern that rising expenses and a Brexit-induced squeeze on consumer spending will pinch industry profits in 2017. Shares of Marks & Spencer, Primark-owner AB Foods and Debenhams also slid ahead of their Christmas trading updates next week.
“Next’s outlook for 2017 rings the alarm bell for the rest of the sector,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone. “There’s a widespread expectation that consumer spending will be under pressure this year.”
Christmas was “moderately disappointing,” Chief Executive Officer Simon Wolfson said by phone. Early-season discounts by competitors led to a drop in demand at Next’s traditional post-Christmas clearance event, when sales were down 7 percent. The retailer has a policy of never discounting before the holiday and won’t be changing that approach, Wolfson said.
Full-priced sales under the Next brand fell 0.4 percent in the 54 days ended Dec. 24, a far cry from the 2.2 percent increase that analysts expected.
“We are preparing the company for tougher times,” the Leicester, England-based retailer said in a statement.
Wolfson said the company’s biggest challenge this year will be to contend with a cyclical slowdown in spending on clothing and footwear. A 15 percent drop in the sale of gift cards this year shows how fewer Britons want clothing as a present, the CEO said.
Not all fashion retailers are finding business so difficult. Since the Black Friday discounting week in November, fashion has been the best-performing product category at department-store chain John Lewis. Sales at Jigsaw -- a premium British fashion chain -- rose 10 percent in December even though the retailer didn’t discount products before Christmas.
“The backdrop for consumer spending this Christmas couldn’t have been more benign,” John Stevenson, an analyst at Peel Hunt, said by phone. “The demand was there, it just wasn’t being picked up by Next.”