Retailers Next and Wm Morrison have emerged as early winners of the festive trading period, even as the UK high street reeled from new lockdown measures and Paperchase became the latest chain to face administration.
Fashion group Next said it expected pre-tax profit for the coming year to recover to near pre-pandemic levels after strong online Christmas sales offset almost all of those lost due to closed stores.
Overall its revenue was down just 0.5 per cent in the nine weeks to Boxing Day, markedly better than internal expectations of an 8 per cent decline and an 18 per cent fall in revenue forecast by Barclays.
Meanwhile, sales at supermarket group Wm Morrison over Christmas and new year jumped as customers shopped more online and splashed out more than usual on festive treats.
Champagne sales were up 64 per cent compared with last year, while sales of whole salmon rose 40 per cent.
The supermarket’s online sales, which benefited from a recently launched online shop on Amazon, tripled in the most recent quarter, compared with last year.
Consultancy Kantar said December was the busiest month ever for British supermarkets and reflected the transfer of much of the £4bn usually spent on eating out at that time of year to the retail sector.
However, stationery group Paperchase looked set to be the first retail casualty of 2021 after it filed a notice of intent to appoint administrators less than two years after a previous financial restructuring.
Paperchase is heavily reliant on its 127 physical shops, many of which are in travel destinations such as railway stations, and has been hit hard by lockdowns. The four-week closure of all non-essential stores in November came at its busiest time of year; the group makes two-fifths of its sales in November and December.
The company said that the cumulative effects of two lockdowns and the current curbs “have put unbearable strain on retail businesses across the country”.
“Out of lockdown we’ve traded well, but as the country faces further restrictions for some months to come, we have to find a sustainable future for Paperchase.”
Next said its central guidance was for pre-tax profit of £670m for the year to January 30 2022, a forecast that assumes non-essential shops remain shut until the end of March. It compares with profit of £729m in the year to January 2020, before coronavirus hit the UK, and market expectations of about £640m.
“You could argue that it’s pessimistic to assume shops will close for three months, but that’s how long it was the first time,” said Simon Wolfson, chief executive, on Tuesday.
He added that the timing of the latest lockdown, announced on Monday night, was easier than the previous one in November. “The cost is obviously lower in absolute terms because the shops take less at this time of year, and our warehouses have more capacity to absorb any switch to online.”
Shares in the company were 6 per cent higher in midday trade on Tuesday.
Next said deliveries of new stock were running “two to three weeks” late because of the displacement of freight containers due to the pandemic, but added this disruption should be over by the end of March.
In its current financial year, the company expected a pre-tax profit of £370m before exceptional items, up slightly from the £365m forecast in its last update in October.
Richard Lim, chief executive of consultancy Retail Economics, said Next was benefiting from years of investment in its online channel. “It is far better positioned to deal with the demanding trading conditions than many of its competitors in the coming months,” he added.
Morrisons did not issue new guidance because of the “extremely unpredictable current circumstances and the consequences for both consumer behaviour and our Covid-19 costs”. However, it stood by previous expectations of full-year pre-tax profits in 2021 of £420 to £440m, before an anticipated business rates payment of £230m.
It said a more than 9 per cent overall rise in like-for-like sales over the Christmas trading period — roughly in line with analyst consensus — would help offset full-year Covid costs, such as implementing social distancing measures and staff absences, which were expected to reach £280m.
David Potts, chief executive of Morrisons, said the pandemic had changed the way people shop with “quite a few consumers who thought they’d never [shop online] blending their shopping”.
He also said better days were ahead for the industry as “the uncertainty of Brexit is behind us and the vaccine is ahead of us”.
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