Next, a UK fashion retailer, is slowly bouncing back from the impact of the coronavirus crisis, as revealed in its latest trading update. The report shows a 28% decline in full-price sales for the second quarter compared to the same period last year. However, the company considers this performance to be better than expected and an improvement compared to its projections outlined in April. Next now has a clearer understanding of its expected performance for the rest of the year and forecasts a full-year profit before tax of approximately £195m and a reduction in net debt of around £460m.

The reopening of Next’s warehouses happened faster than anticipated, and the company reported that store sales were more resilient than initially thought. Consequently, its sales for the second quarter exceeded internal expectations, with online sales increasing by 9% and like-for-like store sales, since reopening, only decreasing by 32%.

Next has devised three new scenarios based on full-price sales projections for the year, assuming declines of 18%, 26%, or 33%. The -26% scenario aligns with the company’s internal forecast, which predicts a 19% decline in sales for the second half of the year. Despite these projections, Next acknowledges that significant uncertainties still persist, including the duration of social distancing measures, consumer behavior after the lockdown, earnings, unemployment, and the potential for a second lockdown.

Reflecting on the past 13 weeks, Next highlights that it now has a better understanding of its online capabilities and consumer demand during lockdown. The company expresses a more positive outlook for the full year compared to the peak of the pandemic.

Analyzing the second quarter, Next reports that the 28% decline in full-price sales also affected total sales figures, including markdowns and clearance items. Categories such as childrenswear, home, nightwear, and sportswear, as well as some adult casual clothing, fared better than more formal adult clothing styles associated with work, events, and travel. However, sales have shown recovery signs in recent weeks, with total full-price sales only down by 8% in the last six weeks of the season.

Interestingly, Next did not heavily discount its products as initially anticipated, citing well-controlled stock levels during the period. Reduced stock purchases, controlled cancellations, and hibernation of core lines for next year contributed to stock levels similar to last year. Markdown sales decreased by 12% compared to the 8% decline in full-price sales. The company purposely avoided aggressive advertising of its end-of-season sale to prevent overcrowding in physical stores and limited the stock available for its online sale due to reduced picking capacities caused by social distancing measures.

Additionally, Next points out that its return rate during lockdown was significantly lower than the previous year. This was attributed to the lower return rates of product categories that performed well, such as childrenswear and homeware. In contrast, categories with weaker sales, like dresses and formalwear, had higher return rates. With physical stores closed for returns, customers relied on courier collections, leading them to be more selective when placing orders and increasing the likelihood of keeping their purchases.

Overall, Next’s second-quarter performance indicates a gradual recovery from the initial shock of the pandemic, with sales surpassing expectations and improved visibility for the rest of the year. The company’s focus on controlling stock levels, adapting to changing consumer behavior, and leveraging its online capabilities has contributed to its optimistic outlook for the full year. However, uncertainties surrounding the ongoing crisis and the possibility of future lockdowns prevent Next from providing the same level of reliable guidance as before.

Useful links:
1. Next Official Website
2. Next’s Recovery from Coronavirus Crisis – Retail Week