TIDMNXT
RNS Number : 8988F
Next PLC
21 July 2021
Date: Embargoed until 07.00hrs, Wednesday 21 July 2021
Contacts: Amanda James, Group Finance Director Tel: 0333 777 8888
(analyst calls)
NEXT PLC
Alistair Mackinnon-Musson Email: next@rowbellpr.com
Rowbell PR Tel: 020 7717 5239
Photographs: https://www.nextplc.co.uk/media/image-gallery/campaign-images
NEXT PLC
Trading Statement - 21 July 2021
INTRODUCTION
Our sales during the last eleven weeks have been materially
ahead of our expectations and, as a result, we are increasing our
profit guidance for the full year. We have brought forward our
Trading Statement by two weeks, so this update replaces our Trading
Statement planned for 4 August 2021.
All sales comparisons in this Trading Statement are given
relative to two years ago (2019/20) as comparisons with last year
are not meaningful.
HEADLINES
-- Full price sales in the eleven weeks to 17 July were up
+18.6% versus two years ago. Our previous central guidance assumed
an increase of +3%.
-- We have increased our full price sales guidance for the rest of the year from +3% to +6%.
-- The Company has decided to repay GBP29m of business rates
relief to the Government. This sum accounts for the period of time
this year that our shops were not charged business rates but were
open. This decision was taken after consulting major shareholders
who, between them, account for around 30% of our shares in
issue.
-- We are increasing our central guidance for full year profit
before tax by +GBP30m to GBP750m (pre-IFRS 16). This is towards the
top of our previous guidance and accounts for (1) the profit from
additional sales and (2) the cost of the unplanned repayment of
business rates relief.
-- For the full year, surplus cash(1) is forecast to be GBP240m.
We plan to distribute this cash to shareholders through special
dividends during the current financial year, the first of which
will be paid in September.
(1) Surplus cash after working capital, capital expenditure,
customer receivables, investments, interest and tax.
FULL PRICE SALES PERFORMANCE BY BUSINESS CHANNEL
The table below details sales growth for our Online, Retail and
Finance businesses for the year to date. For comparison, the
left-hand column shows sales for Q1 (reported in our May trading
statement), the second column gives the sales in the current
quarter.
Full price sales (VAT exclusive) Q1 Q2 H1
versus 2019 to 17 July to 17 July
================================== ====== =========== ===========
Online NEXT UK +63% +28% +47%
Online LABEL UK +71% +65% +68%
Online Overseas +67% +61% +64%
====== =========== ===========
Total Online +65% +44% +56%
Retail (UK and Ireland) - 76% - 6% - 43%
====== =========== ===========
Total Product full price sales - 0.6% +20.8% +9.3%
Finance interest income - 12% - 9% - 11%
====== =========== ===========
Total full price sales including
interest income - 1.5% +18.6% +7.8%
Possible Explanation for Strong Q2 Sales
We believe that the following factors have contributed to the
unexpectedly strong sales performance:
1. Pent-up demand for adult clothing, with many customers having
made few summer purchases during the last 18 months.
2. The onset of extremely warm weather at the end of May and
start of June. Growth significantly slowed once the very warm
weather passed.
3. Fewer holidays overseas are likely to have increased domestic spending in the UK.
4. Consumer savings have materially increased over the last year.
Sales Performance by Week
The following chart shows full price sales growth by week. The
last three weeks of the period are affected by the timing of our
end-of-season Sale, which was a week later than two years ago. The
effect has been to boost full price sales growth in the weeks
commencing 27 June and 4 July, but depress performance in the week
commencing 11 July. The average during the three weeks was +13%
versus two years ago.
2021 Full Price Sales Variance by Week Versus 2019 chart: Click
or paste the following link into your web browser to view the PDF
document. Refer to page 2 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/8988F_1-2021-7-20.pdf
Second Half Full Price Sales Guidance
We do not expect sales to continue at these exceptionally strong
levels but we are more optimistic about the outlook than we were
three months ago, and have raised our sales guidance for the second
half from +3% to +6%.
Product Full Price Sales Performance - Breakdown by Brand and
Division
The table below sets out the variance in total full price sales
(i.e. Retail and Online added together) by product category and
geography. Given the exceptional performance in the UK of NEXT
Childrenswear and NEXT Home, we have broken out the performance of
these areas from our Adult clothing business.
In the last eleven weeks, UK sales performance across all NEXT
divisions has improved with the opening of our stores. The
performance of LABEL (+64%) and our Overseas Online business (+61%)
has remained consistently strong both before and after the opening
of our stores.
Full price product sales (VAT exclusive) Q1 Q2 H1
versus 2019 to 17 July to 17 July
(Retail and Online added together)
========================================== ====== =========== ===========
UK NEXT-branded Adult clothing - 46% - 6% - 27%
UK NEXT-branded Childrenswear +2% +12% +6%
UK NEXT-branded Home +12% +40% +25%
====== =========== ===========
UK NEXT brand - 22% +7% - 8%
UK LABEL third-party brands (inc.
Lipsy sold in stores) +67% +64% +66%
====== =========== ===========
TOTAL UK full price sales - 9% +16% +2%
Overseas Online +67% +61% +64%
Overseas Retail (Republic of Ireland) - 100% +1% - 54%
====== =========== ===========
Total full price product sales - 0.6% +20.8% +9.3%
Finance Interest Income
In the last eleven weeks, interest income was down -9% and in
line with our expectations, average customer balances (excluding
provisions) were down -7%. Lower customer balances were caused by a
combination of (1) customers choosing to pay down their balances
faster and (2) reduced credit sales during the pandemic last
year.
End-of-Season Sale
We went into the end-of-season Sale on 10 July, with surplus
stock down -4% on two years ago. As expected, clearance rates to
date are lower than two years ago but marginally ahead of our
forecasts.
FULL PRICE SALES AND PROFIT GUIDANCE
Our revised central guidance for full price sales and profit
before tax is set out below.
It is important to note that our sales guidance assumes that our
stores will be permitted to remain open and trade throughout the
rest of the year.
Central scenario
============================================= ================
Full price sales to 17 July versus 2019/20 +7.8%
Rest of year full price sales versus 2019/20 +6.0%
================
Full year full price sales versus 2019/20 +6.8%
Profit before tax (pre-IFRS 16) GBP750m
Profit before tax versus 2019/20 +3.0%
================
Profit Walk Forward from Previous Guidance
The table below walks forward the change in our central profit
guidance from the forecast we issued in May. The anticipated
additional sales of GBP185m (of which GBP121m has been achieved to
date) are forecast to contribute an additional GBP59m to
profit.
Previous central guidance for profit before tax (pre-IFRS GBP720m
16)
========================================================= ========
Profit from +GBP121m of additional full price sales +GBP39m
to date
Profit from +GBP4m of additional full price sales +GBP1m
forecast in the next two weeks
Profit from +GBP60m of additional full price sales +GBP19m
forecast in the second half
========
Profit based on new full price sales guidance +GBP779m
Voluntary payment of business rates relief - GBP29m
========================================================= ========
New central guidance for profit before tax (pre-IFRS GBP750m
16)
Repayment of Business Rates Relief
Since our stores have reopened they have performed better than
we expected, and we intend to repay any business rates relief we
have received, or will receive, while our stores are open this
year. This decision was taken after consulting major shareholders
who, between them, account for around 30% of our shares in issue.
Assuming that our stores remain open for the remainder of the
financial year, we estimate the cost of this repayment will be
GBP29m.
OUTLOOK FOR CASH FLOW, DIVIDS AND NET DEBT
Cash Flow
Based on the central guidance, we expect to generate around
GBP483m of surplus cash after deducting working capital, capital
expenditure, interest and tax. We anticipate using GBP172m of this
surplus to fund the expected reversal in last year's decline in
customer receivables. A further GBP71m of other investments are
expected as set out below. This would leave GBP240m, which we
intend to distribute to shareholders (see paragraphs below).
GBPm Jan 2022
(e)
============================================================= ==== ========
Profit before tax (pre-IFRS 16) 750
Depreciation/disposals and property provisions 105
Capital expenditure (190)
Tax paid (125)
Working capital (including GBP75m of net ESOT(2)
purchases) (57)
========
Surplus cash from operations 483
Customer receivables (172)
Investment in Reiss (GBP33m equity and GBP10m
loan) (43)
Property stock (Elmsall 3 warehouse build costs) (28)
====
Investments (71)
==== ========
Cash flow before distribution to shareholders 240
(2) Employee Share Option Trust.
Dividends
We remain committed to distributing surplus cash, that we cannot
profitably invest in the business, to shareholders. As a result of
the pandemic, last year we did not pay any dividends to our
shareholders. In the light of this year's anticipated cash flow and
the stability of our balance sheet, we now believe it is
appropriate to restart dividend payments.
The Board has decided to declare a special dividend of 110p per
share to be paid on 3 September 2021 to shareholders registered at
the close of business on 13 August 2021. Shares will trade
ex--dividend from 12 August 2021. The total value of this special
dividend is approximately GBP140m.
It is our intention to distribute the balance of surplus cash
generated as a second special dividend at the end of January 2022
which, if paid, would be announced in our Christmas Trading
Statement on Thursday 6 January.
It is our intention to return to ordinary dividends in the year
to January 2023.
Net Debt (Excluding Lease Debt)
Our GBP325m bond will be repaid in October 2021 and we do not
intend to issue a new bond in its place. After the payment of
anticipated special dividends and the repayment of the GBP325m
bond, we forecast our net debt will be GBP610m in February 2022.
This would be in line with our opening position in February 2021
but significantly lower than our net debt in February 2020, which
was GBP1,112m. In February 2022 this net debt would represent
around 50% of our forecast customer receivables balance of
GBP1.2bn.
Cash on
GBPm deposit Bonds Net debt
======================================= ======== ======= ========
Opening balance February 2021 515 (1,125) (610)
Forecast cash flow generated in the
year before dividends 240 240
Forecast special dividends (240) (240)
Repayment of October 2021 bond (325) 325 0
======== ======= ========
Forecast closing balance February 2022 190 (800) (610)
INTERIM RESULTS
We are scheduled to announce our results for the first half of
the year on Wednesday 29 September 2021.
STATUTORY PROFIT - IFRS 16 LEASES
Background
The lease accounting standard IFRS 16 was introduced in 2019. In
2020 we reported our profits both on a pre-IFRS 16 and post-IFRS 16
basis. Going forward we intend to only report on a post-IFRS 16
basis. This will be the last Trading Statement where we quote
pre-IFRS 16 profit.
Profit Guidance Under IFRS 16
Our revised profit guidance under IFRS 16 is set out below.
Profit before tax is GBP14m higher under IFRS 16. A detailed
explanation of the impact of IFRS 16 was set out in our Year End
Results in January 2020(3) .
(3)
https://www.nextplc.co.uk//media/Files/N/Next-PLC-V2/documents/2020/Copy%20of%20Jan20-website.pdf
(Page 49)
Central guidance
2021/22 2019/20
================================= ================ =======
Profit before tax (pre-IFRS 16) GBP750m GBP729m
Impact of IFRS 16 +GBP14m +GBP20m
================ =======
Profit before tax (post-IFRS 16) GBP764m GBP749m
Profit before tax versus 2019/20 +2.1%
Cash Flow Under IFRS 16
For clarity, IFRS 16 does not alter the reported or actual cash
flow of the Group, so the forecast cash flow before distributions
to shareholders remains GBP240m.
This announcement contains Inside Information as defined in
Article 7 of the Market Abuse Regulation.
Forward Looking Statements
Certain statements in this Trading Update are forward looking
statements. These statements may contain the words "anticipate",
"believe", "intend", "aim", "expects", "will", or words of similar
meaning. By their nature, forward looking statements involve risks,
uncertainties or assumptions that could cause actual results or
events to differ materially from those expressed or implied by
those statements. As such, undue reliance should not be placed on
forward looking statements. Except as required by applicable law or
regulation, NEXT plc disclaims any obligation or undertaking to
update these statements to reflect events occurring after the date
these statements were published.
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