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Next shares boosted by full year profit forecast hike after unexpected rise in Christmas sales

Next said cold weather boosted full price sales over the festive season
Shoppers stocked up on winter clothes during the colder months

Shares in Next Plc (LON:NXT) jumped 7% higher today as the clothing and homewares retailer raised its annual profit forecast after delivering a unexpected increase in full price sales over the Christmas period.

The FTSE 100 listed reported a 1.5% rise in total full price sales between November 1 and December 24, most of the fourth quarter, as the colder weather saw more customers stock up on winter clothes.

READ: Next sees raft of target hikes after upbeat results, but majority stay below current share price

The company had previously guided towards a 0.3% decline for the fourth quarter after third quarter growth of 1.3%. Analysts had expected a 0.5% fall in Christmas sales. 

Retail sales fell 6.1% during festive season but this was offset by a 13.6% increase in online sales.

Next upgraded its central pre-tax profit guidance for the year to January 2018 to £725mln from a previous estimate of £717mln. It said stock for its end-of-season sale was down 6% on last year with clearance rates in line with expectations.

"Christmas trading is clearly better than many may have feared, helped by cold weather...," said Liberum analyst Adam Tomlinson.

The analyst added that the improving trend in full price sales growth and a reduction in stock for the end-of-season sale give him "confidence that the marginally upgraded profit guidance should be achieved", dependent on the performance of January sales.

Next expects headwinds facing UK retailers to ease

However, Next warned that many of the challenges it faced last year look set to continue in 2018.

“Subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in our cost prices remain challenges for 2018,” it said.

“However, we believe that some of these headwinds will ease as we move through 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."

Next to return surplus cash to shareholders next year

The company expects full price sales for the year to January 2019 of between a 2% decline and a 4% increase. The mid-point of 1% growth would represent a pick-up on this year’s expected rise of 0.3% and is projected to lead to profit of about £705mln, down on the estimate for fiscal year 2018.

Guidance for 2019 profit is expected to generate about £300mln of surplus cash, which Next intends to return to shareholders via share buybacks. 

"The decision to use the expected £300mln of surplus cash generated next year to fund share buybacks rather than special dividends implies management believe the shares represent good value at the moment," said George Salmon, equity analyst at Hargreaves Lansdown.

In late afternoon trading, Next shares were up 7% at 4,815p, just easing back from a session high of 4,947p.

 -- Updates share price --

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