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Next plans better warehouse capacity, expects full-year profit

Profit before tax could be as much as £330mln or as little as £15mln based on three scenarios

Next PLC - Next plans better warehouse capacity, expects full-year profit

Next PLC (LON:NXT) said it plans to improve warehousing capacity in the second half of the year as it expects to make a full-year profit.

The fashion retailer intends to introduce new 24-hour working shift patterns, along with greater support for warehouse activities in stores during peak sale periods.

READ: Next shares knocked as Goldman Sachs downgrades rating to ‘sell’ from ‘neutral’

The FTSE 100-listed firm said it has modelled three scenarios for the remainder of the year to end-January, 2021, with the central one implying profit before tax of £195mln if sales are down 19% in the second half. Year-end net debt will be £460mln-650mln, within the company’s cash resources of £1.6bn.

In the upside and downside scenario, profit before tax would come in at £330mln and £15mln respectively.

Wage costs are expected to be £140mln lower than last year as 80% of staff were initially furloughed, with a tenth of employees still furloughed now but expected to return to work by Christmas.

In the quarter to July 25, 2020, sales beat expectations, albeit with a 28% drop compared to last year, with online sales rising by 9%.

The clothier saw lower return rates during the coronavirus lockdown, as the products that sold well such as childrenswear and homeware are usually returned less than the least popular items such as occasionwear. The firm said it may also be due to customers being more selective while online shopping.

Next said it also saved £280mln by cancelling stock and identified £150mln worth of items that can be carried to next year.

"In keeping with the stronger trading updates we have seen across the sector, such as Primark, Next’s recovery over Q2 has proved stronger than the internal scenarios the company had previously published, resulting in a more favourable profit and cash position in the group’s revised scenarios for the rest of the year," analysts at Peel Hunt commented.

The broker noted profit before tax could hit over £600mln in the financial year to January 2022, while a return to dividends and shareholder returns is "likely" from the 2021 finals.

Shares shot up 9% to 5,744p early on Wednesday.

--Adds analyst comment, shares--

Quick facts: Next PLC

Price: 7988 GBX

Market: LSE
Market Cap: £10.62 billion

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