Labour shortages and inflation may hurt Next over Christmas, despite the retailer’s sales in the third quarter being better than expected.
The FTSE 100 group said yesterday that full-price sales had risen by 17 per cent in the 13 weeks to October 30 compared with the same period two years ago, before the pandemic. Its performance continues to be helped by a strong digital business, with total online sales rising by 40 per cent in the quarter, boosted by an 86 per cent jump in UK sales of third-party brands through its Label website.
Next, which was started in 1982 by George Davies, has 498 shops, 21,600 employees and is seen as one of the strongest names in British retail because it used its mail order catalogue business to give it a head start with online sales. It sells about 20,000 third-party products and hundreds of brands, including Calvin Klein, Joules and Barbour through Label.
Next said that sales in the most recent five weeks were 14 per cent higher than two years ago, better than its 10 per cent growth forecast and £14 million more than its estimates.
However, it said that sales growth would be lower in the final quarter — traditionally the busiest time of year for retailers, as it includes Black Friday and Christmas — and that it anticipated boosting sales by 10 per cent. It added that the additional profit generated in the third quarter would be largely absorbed by the additional money it was spending on digital marketing and the increased use of flying its stock.
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Retailers are turning to air freight, despite the additional cost and environmental implications, because of delays at sea ports and a shortage of containers that are also causing shipping transport costs to soar tenfold.
Next said that as a result of these extra pressures and because it expected the effects of pent-up demand to diminish, it was maintaining its annual profit guidance of £800 million. Nevertheless, that would be more than double the £342 million recorded last year and higher than the £729 million it made before Covid struck.
Such caution sent its shares down by 276p, or 3.3 per cent, to £80.36, with Marks & Spencer, its great rival, also affected, with its stock easing by 2¼p, or 1.2 per cent, to 183¾p.
Analysts at Berenberg said that the profit guidance was “2 per cent below consensus expectations”. Ben Hunt, at Investec, said that Next’s third quarter “surpasses expectations, but the outlook for the fourth quarter, whilst confident, reflects a little more caution”.
Next’s prudent outlook is partly because of concerns about supply chains, which are facing challenges from the aftershocks of Brexit and the pandemic. The retailer said that while stock availability had improved, it “remains challenging, with delays in our international supply chain being compounded by labour shortages in the UK transport and warehousing networks”.
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Two months ago Lord Wolfson of Aspley Guise, Next’s chief executive, accused the government of not responding swiftly enough to address lorry driver shortages and he has said that there continues to be a struggle to recruit British staff in warehouses, despite rising wages.
The group also noted that while consumer finances were in good shape, helped by people saving cash they would have spent commuting, travelling and going out during lockdowns, “price increases in essential goods, such as fuel, may moderate demand for more discretionary purchases”.
