now expects full-year pre-tax profit of about £300m, up from an estimate at the end of July of £195m
Next now expects full-year pre-tax profit of about £300m, up from an estimate at the end of July of £195m © Bloomberg

Next has upgraded its profit forecast for the second time this year after reporting more resilient sales than it expected, but the fashion retailer struck a cautious note on second-half trading.

The FTSE 100 group now expects full-year pre-tax profit of about £300m, up from an estimate at the end of July of £195m. Sales in the most recent seven-week period were up 4 per cent, helped by cooler weather and fewer people taking holidays.

However, the company still expects full-year sales to fall 12 per cent, citing the end of the government’s furlough scheme and uncertainty over the trajectory of the pandemic.

It added that England’s “rule of six”, which limits social gatherings, “is likely to depress demand for gifts and clothing associated with traditional Christmas family get-togethers”.

“We are no longer in a position of having to worry about the company’s stability,” said Simon Wolfson, chief executive. “Even if there is another full lockdown it would not be as bad because we wouldn’t have to close our warehouse.”

European rivals Hennes & Mauritz and Inditex, parent of Zara, both said this week they had begun to enjoy a marked sales improvement this summer after coronavirus sharply depressed their sales earlier in 2020.

Lord Wolfson said that while the pandemic had been “hugely expensive and disruptive”, the company’s strong online business, exposure to categories such as loungewear and childrenswear, and substantial sales of homewares had helped it.

It also benefited from a high proportion of out-of-town stores. Retail parks have experienced a stronger recovery in footfall than town centres or shopping malls since the UK’s non-essential retailers were permitted to reopen on June 15.

However, Lord Wolfson insisted he was not writing off city centres. “Humans are quite gregarious,” he said. “We will look at this town by town and city by city. A lot will depend on what rents landlords are prepared to accept.”

Next expects to renew 60 leases out of an estate of almost 500 stores this year. So far it has secured average reductions in rent of 50 per cent and moved 18 stores on to turnover-based leases.

The company has also signed up its first customer for its “total platform”, which provides a full ecommerce service for retailers and brand owners.

Asked if the service could grow into something like Ocado or the Hut Group, which floated this week at a far higher valuation than Next, Lord Wolfson said he did not make “grand predictions”.

“But we do see many more avenues for growth in the business than we did two or three years ago,” he added.

Next shares were up 4 per cent in early afternoon trade on Thursday and have recovered almost half the losses they sustained in the early phase of the pandemic.

Analysts at Jefferies said the company had in effect moved its own guidance into line with market forecasts, and that the comments about second-half trading suggested Next was still erring on the side of caution.

For the six months to July, the group reported a 34 per cent decline in sales to £1.34bn and pre-tax profit was just £9m. Store sales fell three-fifths because of the UK’s 12-week lockdown, while online sales were down 14 per cent.

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