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Next shares jump as it lifts full year forecast after sunny weather boosts first quarter sales

Last updated: 08:31 10 May 2018 BST, First published: 07:31 10 May 2018 BST

Next
Next expects share buybacks to lift earnings per share by 4.7% for the year

Fashion retailer Next Plc (LON:NXT) raised its full year profit forecast as the recent bout of sunny weather led to better-than-expected first quarter sales.

Full price sales in the 14 weeks to May 7 rose 6% as an 18.1% increase in online sales offset a 4.8% decline at stores.

The company said unusually warm weather in recent weeks meant quarterly sales were around £40mln higher than expected and added £12mln to its annual profit. The first quarter was also flattered by an underperformance of clothing ranges in the same period last year.

“Few retailers would go to the lengths Next has to play down what are undoubtedly strong results, especially when UK retailers are facing such a tough environment. But there’s method in the madness," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"If, as Next seems to believe, the strong first quarter reflects shoppers pulling forward their summer purchases to take advantage of the recent warm weather, then Q1’s positive results will come largely at the expense of later quarters. 

Hyett said the firm's willingness to "say it as it is" is one of the reasons he remains upbeat about Next’s long-term prospects throughout the recent downturn in the retail sector. 

"It’s an exceptionally well run business that communicates well with its shareholders," he said.

Next lifted its central guidance for annual pre-tax profit to £717mln from a previous estimate of £705mln. The new forecast represents a 1.3% drop on the prior year’s pre-tax profit.

The group's central estimate for total full price sales growth was also raised to 2.2% from 1.0% previously.

Shares jumped 5.7% to 5,550p in morning trading. 

Next's share buyback 

The retailer said it has returned £195mln to shareholders as part of a £300mln share buyback announced in January and intends to return the balance over the course of the year.

READ: Next's 2017 sales hit by consumer spending slowdown and online shift

It expects share buybacks to lift earnings per share by 4.7% for the year. Combined with a lower tax rate, Next predicts EPS to “move forward faster than profits” and increased its central guidance for EPS growth to 3.7% from 1.4%.

In March the group reported an 8.1% drop in pre-tax profit to £726.1mln for 2017, saying it was its toughest year in 25 years due to a shift in consumer preference towards online shopping and the impact of higher inflation on disposable incomes.

 

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