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Next Blames Warm Weather, Not Brexit, for Slow Trading

Shares in the British retailer fell as much as 5.2 percent on Thursday after the gloomy assessment of its key Autumn/Winter sales so far.
Next Autumn 2019 campaign | Source: Next Plc media library
  • Reuters

LEICESTER, United Kingdom — Retailer Next Plc has made a "disappointing" start to autumn trading which it said was down to unusually warm weather in parts of Britain, rather than shoppers holding back on buying new clothes due to uncertainty over Brexit.

Next shares fell as much as 5.2 percent on Thursday, paring the stock's gains for the year so far to 48 percent, after the gloomy assessment of the first few weeks of the retailer's key Autumn/Winter season.

While it did not give figures, Next said "the warm start to September has done much more to hinder sales than the political temperature" and it has not seen any evidence that shoppers are holding back on small ticket price items due to Britain's planned exit from the European Union next month.

UK retailers, including supermarkets Asda and Morrisons and home improvement group Kingfisher, have said uncertainty around Brexit was affecting their customers.

"At the moment Brexit is the reach-to explanation for everything in the economy," Next Chief Executive Simon Wolfson told Reuters.

Wolfson pointed out that last week when temperatures in Scotland and the north of England were significantly cooler than in the south, the trading performance of the two regions, both in stores and online, diverged by 10 percent.

"It would be unlikely that was coincidence — that the areas that were warm performed 10 percent worse than the areas that were cool and that those areas happened to be the ones that were more worried about Brexit," he told Reuters.

Wolfson, a prominent Conservative "Leave" supporter who sits in the upper house of Britain's parliament, said consumers were not buying clothing until they absolutely needed it.

"They're not going to go out and buy their winter knitwear until it gets cold," he said.

Official UK data published on Thursday showed retail sales unexpectedly fell on the month in August after shoppers bought less online than the month before.

Britain is due to leave the European Union on October 31, but the government has yet to agree a new deal, increasing the risk of a disorderly "no-deal" Brexit.

Next believes Brexit will only materially affect consumer spending in the event that it triggers inflationary pressure on prices or logistical problems at British ports. Next does not expect its own prices to rise.

Profitable Stores

The retailer also reported a 2.7 percent rise in first-half profit as robust online sales more than offset a decline at its stores and it maintained its forecast for the full 2019-20 year.

Next, which trades from about 500 stores in the UK and Ireland, about 200 stores in 40 countries overseas and its Directory online business, made a pretax profit of £319.6 million in the 26 weeks to end-July.

This was up from £311.1 million in the same period last year, on group sales up 3.7 percent to £2.06 billion.

Full-price sales at Next's stores fell 3.9 percent in the period, but they were up 11.9 percent online, starkly illustrating the clothing industry's structural shift from physical stores to online.

However, the firm says its stores will remain profitable even if they become less productive.

For 2019-20 Next foresees full-price sales up 3.6 percent and pretax profit of £725 million, a 0.3 percent rise on the 2018-19 outcome, with earnings per share growth of 5.2 percent, reflecting share buybacks. Its interim dividend rose 4.5 percent.

By James Davey; editors: Paul Sandle and Alexander Smith.

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