Next Plc (LON:NXT) shares dropped after it warned that its performance has been “extremely volatile” and highly dependent on the weather even as it lifted its full-year profit guidance and reported sales growth in the third quarter.
In a trading update for the three months to September 30, the fashion retailer said it expects full-year group profit before tax of between £692mln and £742mln, up from the range of £687mln to £747mln estimated during the first-half results in September.
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The new pre-tax profit guidance marks a year-on-year drop of between 12.4% and 6.1%.
The company also predicted a 0.3% decline in full price sales of its own-brand items, which represents the mid-point of its September guidance for between a 2.0% decline and a 1.5% rise.
“We believe the most reliable guide to sales for the balance of the year are the full price sales for the year to date, which are down 0.3%,” Next said.
Full price sales rose 1.3% in the third quarter after a 0.7% rise in the second quarter as cooler weather in August and September lured in customers to pick up new season ranges.
A 13.2% increase in full price sales in the online catalogue shopping arm, Next Directory, offset a 7.7% fall in retail stores.
Sales dependent on weather
Next admitted that it had been lucky with the weather and was cautious about the rest of the year amid a slowdown in consumer spending as disposable incomes fall on higher inflation and weak wage growth.
“Next better hope that British shoppers are a little less fickle than the weather, because sales performance is so volatile the firm has no idea what to expect over the vital Christmas trading period,” said Neil Wilson, senior market analyst at ETX Capital.
“This is a worry, although there does seem to an improving trend in sales growth throughout the year that may calm nervous investors. “
Total sales, including markdown sales, rose 0.8% in the third quarter and fell 1.2% in the year-to-date as clearance rates for its mid-season sale were lower than the previous year, following the trend seen in the second quarter for the summer end-of-season sale.
Next 'pessimistic' about fourth quarter
Next warned that its fourth quarter full price sales will fall 0.3%, which “may seem pessimistic” given its performance in the third quarter.
“However, as we highlighted in September, the third quarter last year was very weak, down 3.5% on 2015, whereas the Christmas trading period was only down 0.4%. So the comparative numbers are much more demanding in the last quarter,” Next explained.
Earnings per share in the full year are expected to drop between 10% and 3.5%, compared to its September forecast of between 10.9% and 3.1%.
Next declares another special dividend
Next declared a fourth special dividend of 45p for the year, in line with its previous guidance, and will be paid on 25 January 2018.
In September the company had said it would return surplus operational cash of about £50mln to shareholders through buybacks. Since then it has bought back 476,453 shares valued at £25mln and Next intends to returns the remaining £25mln through buybacks before the end of the year.