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Next tumbles to loss but says online shopping habits are sticking

Even in its worst forward guidance scenarios for the year, the group is expected to generate profits and cash and cut debt

Next PLC -

Next PLC (LON:NXT) tumbled to a loss in the first half of the year but has upped its full-year profit guidance noting that online clothing sales have been significantly stronger since stores reopened than before the coronavirus pandemic struck, indicating some lockdown habits have stuck.

The FTSE 100-listed retailer reported a 33% decline in full-price sales for the half-year to end-July, 2020, with total revenue down 36% to £1.3bn.

At the statutory level, the clothing chain tumbled to a £16.5mln loss before tax from a £327.4mln profit a year ago, but without including lease obligations said its underlying profit before tax was £9mln.

What’s more, surplus cash of £347mln was generated, which will be used as part of a plan to cut net debt by £462mln to £650mln by the end of the year, following the decision to cancel the dividend and share buyback earlier in the year. 

As well as being able to take advantage of the shift to online shopping, which even before lockdown accounted for more than half of Next's turnover, the group also has a strong out-of-town presence in its store estate, as well as benefiting from its sizeable range of homeware, childrenswear, loungewear and sportswear businesses, which have all done relatively well during the pandemic.

Looking forward, the company said prospects for the next six months “remain as uncertain as the outlook for the virus itself; never has our guidance been more tentative or as broad in its possible outcomes”. 

In the past seven weeks, full-price sales have risen 4% on last year, which the company has attributed to some changeable recent weather and fewer overseas holidays.

In all its forward guidance scenarios for the year, the group said it is expected to generate profits and cash, and cut debt.

For the full year, the central guidance is for a £300mln profit on sales down 12%, which would be down 59% on the previous year but is a big improvement on the £195mln profit that had been pencilled-in back in July.

The shares clambered up another 2% to 6,282.28p on Thursday morning, up 85% since April's lows and now down 10% since the start of the year. 

“You’ve got to hand it to Next. Even in a world where businesses are struggling and consumers face big uncertainties over their personal and financial health which arguably puts a cloud over their willingness to spend, Next is still managing to keep its head above water," said analysts at AJ Bell.

“The business is lucky to have already established a strong online presence pre-Covid so it has been able to capitalise on this year’s accelerated shift from the high street to the web in terms of how people buy goods and services.”

The analysts noted that there had been no change yet in bad debt trends, which might have expected to start mushrooming amid growing unemployment. 

“Next’s management has always taken a cautious view and is not being complacent, which explains why it is making provisions now for an increase in bad debts just in case. That summarises Next to a tee. Its ability to keep making money through the crisis should be cause for celebration, but Next would never party too hard.”

   --Adds share price and analyst comment--

Quick facts: Next PLC

Price: 5978 GBX

Market: LSE
Market Cap: £7.94 billion

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