Next raised its full-year profit guidance on Thursday for the fourth time this year, by £12 million to £1.255 billion, after first-half pre-tax profit rose 10.5 percent to £569 million. Full-price sales were up 7.7 percent in the twenty-six weeks to 1 August, helped by a hot British summer. Earnings per share rose 12.2 percent to 370.4p and the pre-tax margin improved to 16.1 percent from 15.8. The interim dividend is 98p.
In the same statement it cut its second-half UK sales growth forecast to 2.0 percent from 2.8 percent, citing inflation, higher mortgage costs and a weak labour market, and said full-price sales growth would slow to 5.8 percent in the half from 7.7 in the first.
The shares rose 3.2 percent in early London trading.
Hold that next to THG last week, which beat its own guidance on revenue and profit, flagged a slower quarter ahead, and fell about eight percent on the day. Two retailers. Both delivered good numbers. Both flagged a slowdown. One went up and one went down.
The difference is not the news. The difference is the record.
Next has now upgraded four times in a single financial year. Each upgrade has been small, specific and explained: this one splits into £5 million from higher sales expectations and £7 million from cost savings, mainly in warehousing. When a company with that history says the second half will be slower, the market reads it as the same careful forecaster being careful again. When a company in the middle of a turnaround says it, the market reads it as the turnaround stalling.
Forecasting accuracy compounds exactly like credit. Every number you hit builds a balance, and the balance is what you spend when you eventually have to deliver bad news.
The cafe version is the most useful thing a small operator can take from this. You tell a wholesale client the delivery lands Thursday and it lands Thursday, forty times running. The forty-first time you ring and say it will be Monday, they say fine and put the phone down, because they have forty data points telling them that when you say Monday it is Monday. The operator who has been optimistic forty times in a row makes the same phone call and triggers a supplier review.
Nobody thinks of reliability as an asset on the balance sheet. It behaves exactly like one, and the moment you need it is the moment you find out how much of it you have.
The substance underneath the Next numbers is a business quietly relocating its growth. Wholly-owned brands and licences grew online sales 32 percent in the UK and 82 percent internationally, now nine percent of total full-price sales. International online sales rose 26.4 percent with profit up 23.4, and the second-half international forecast was lifted to 20.5 percent from 14.7. Retail stores were roughly flat on sales, down 0.4 percent, and still grew profit 4.0 percent to £83 million on better margins. The core NEXT brand in the UK slipped 0.5 percent.
So the UK is the softest part and the group is leaning harder on overseas demand and tighter operations while it is soft.
Four upgrades, a downgrade to the home market, and the shares up three percent.
That is what forty Thursdays buys you.
Source: Investing.com, “Next raises profit guidance again, flags slowdown in H2 sales growth; shares rise”
