Next results prompt cautious optimism for consumer Christmas spending

Next’s sales over the festive period were stronger than anticipated, but experts warn they set the tone “for a tough Christmas”.

The British retailer revealed this morning (3 December) that full price sales from Wednesday 1 November to Sunday 24 December were up 1.5% on last year. In comparison, last year’s sales only increased by 0.2% for the same period.

The jump in sales might have come as a surprise to the company, as Next initially predicted in November that sales would decline by -0.3%.

The retailer puts the improvement down to much colder weather leading up to Christmas. The company also had 6% less stock in its end of season sale and Black Friday event.

Both online and retail store sales experienced a year-on-year improvement, with online performing “particularly well”. In-store sales were down -6.1% in the 54 days to 24 December – but up 0.9% compared to the year before.

Meanwhile, online sales in the run-up to Christmas grew by 13.6%, compared to 10.4% last year. In light of these results, Next has upgraded its profit guidance for the full year by £8m to £725m.

The cooler weather is likely to have played a helping hand but these results set the tone for a tough Christmas.

Richard Lim, Retail Economics

Next says it recognises many of the hurdles it faced last year are set to continue into the year ahead, driven by subdued consumer demand, the increase in experiential spending at the expense of clothing and inflation in its cost prices. However, it believes some of these headwinds will ease throughout the year.

“We already know that cost price inflation will reduce to 2% in the first half and believe it will disappear in the second half,” the company said in a statement.

Next’s results might have come as a surprise, with flagging consumer confidence and increased enthusiasm for credit card spending having dominated the headlines in the run-up to Christmas.

It might bring some much-needed “good tidings” to the retail sector, says Fiona Cincotta, senior market analyst at City Index.

“The result is far from perfect, with sales at bricks and mortar stores still sliding. But the rate of decline has eased, while investments in its mobile and online offerings have sent directory sales soaring,” she says.

Not everyone is convinced however. Richard Lim, chief executive of Retail Economics, believes these results highlight the “relentless” shift towards online spending with high street stores remaining in “desperate” conditions.

“The cooler weather is likely to have played a helping hand but these results set the tone for a tough Christmas,” he says.

“The length, breadth and depth of discounting this season has been astonishing. Just how much damage all of this discounting has inflicted on gross margins will be under close scrutiny.”