Next PLC (LON:NXT) jumped on Thursday as it “could sustain the loss of more than £1bn”, representing 25% of annual sales as it changed its dividend policy.
Alongside its annual results, the retailer provided a detailed outlook based on coronavirus impact in various scenarios, assuming the pandemic could last between two and 24 weeks.
WATCH: Wilson King's Richard Hunter on Next's 'fairly disappointing' trading update
In the first case, the FTSE 100-listed chain expects to lose 10% of annual sales, while a quarter of them will be wiped out in the second.
The two cases would see profit before tax, including business rates holiday, dropping to £490mln and £55mln respectively.
“Our gut feeling is that the -10% scenario is too optimistic, and we believe the -25% scenario is overly pessimistic,” management said, adding it is “pure guesswork”.
Suspend or stop the divi
The clothes seller has identified a series of measures to take based on how the situation will evolve, beginning with the suspension of share buybacks, through delaying the dividend or stopping the payouts for both 2020 and 2021 as “a last resort”.
Instead of proposing a final dividend, which would have been 116.5p per share, Next announced a second interim payout of up to the same amount to be paid between August and October.
In the year to 25 January, revenue and profit before tax both rose 2% to £3.9bn and £748mln respectively.
Next ended the period with £19mln cash and £2.3bn of net debt including leases.
Consensus on 'hold'
"The market consensus of the shares as a hold is being crimped not by any mistakes of the company’s own making, but rather from a general economic malaise which increasingly looks likely to result in a global recession," said interactive investor's Richard Hunter.
"While such a recession could be sharp, but brief, investors are likely to remain neutral on Next and indeed the rest of its sector, despite any worries about over-valuation having evaporated."
Shares jumped 11% to 4,275p on Thursday morning.
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