Next CEO Wolfson Pays Price for Fashion Faux Pas as Shares SlideBy
Stock drops as much as 7.2% as retailer trims profit forecast
Omission of basic garments from range hurt first-quarter sales
Too many trendy fashions and too few basic garments have proved costly for Next Plc.
Sales declines at the U.K. clothing retailer worsened in the first quarter of the financial year, causing it to trim its profit forecast at an early stage and sending the shares tumbling. By its own admission, Next placed too much emphasis on getting the latest fashion lines into stores quickly, leading to staples such as easy-to-wear work blouses being squeezed out of its ranges.
“Next has been finding it challenging managing the balance between having faster decision-making in the business and enough commercial, wearable product,” Richard Chamberlain, an analyst at RBC Europe, said in a note.
The retailer’s push towards fast fashion was designed to enable it to better compete with the likes of Inditex SA’s Zara and nimble online-only rivals that constantly update their product ranges. The misjudgment comes at an unforgiving time for U.K. fashion retailers, who are contending with a shift in consumer spending toward leisure experiences, as well as an increase in purchasing costs caused by the Brexit-induced drop in sterling.
Chief Executive Officer Simon Wolfson said Thursday he doesn’t expect the gaps in Next’s product assortment to be fully fixed until September. As a result second-quarter sales are likely to decline at a similar pace to the first quarter, he said, though the CEO expects an improvement in the second half of the year.
Next shares fell as much as 7.2 percent in London, echoing a 14 percent drop on Jan. 4 when the company forecast another tough year after a disappointing Christmas.
A shift in consumer spending patterns toward leisure experiences as well as stagnating disposable incomes will continue to weigh on clothing sellers generally, Wolfson said. The comments deepened investor concern over the prospects of the rest of the industry, sending shares of Marks & Spencer Group Plc down 2.4 percent.
Next forecast full-year pretax profit will be between 680 million pounds and 740 million pounds ($952 million), reducing the top end of that range from 780 million pounds.
Other highlights from first quarter results:
- Full-priced sales under the Next brand fell 3 percent in the three months ended April 29, compared with the median estimate of 11 analysts for a 2 percent drop
- Store sales declined 8.1 percent, while sales in its online business grew 3.3 percent
- Wolfson said he expects Next will increase clothing prices by about 4 percent in the second half to mitigate higher purchasing costs
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