Following decent trading updates from the likes of H&M and Inditex earlier this week, expectations were high that Next would be able to follow suit when they reported on their latest first half numbers today, and they haven't disappointed. Next's share price climbed over 2.5% higher in early trading this morning.
In April the company revealed that sales of full price clothing fell 52% in the three-month period from the end of January to April. This improved to a decline of -28% in Q2, which was a slightly better-than-expected performance, with online and warehouse division starting to return to normal capacity. Online like-for-like sales actually showed a rise of 9% in Q2, with retail store sales unsurprisingly down 32%.
Management said that for the second half of the year they would be looking to augment and enhance the picking capacity of the warehouse operations in order to improve the online business, and especially delivery times, which have suffered due to the extra workload.
Next share price boosted by improved guidance
Today’s update has seen the business report a first-half profit before tax of £9m, with full price sales down 33% on a year ago. Total first-half revenues did fall a little short at £1.36bn, with consensus expectations for about £1.57bn.
The company also updated its guidance for the full year, saying that profit before tax is now expected to come in at £300m, up from the guidance that was issued in July of £195m, though the decision was also taken not to reinstate the dividend with the economic outlook still so uncertain.
When you consider that in January, Next was expecting to see pre-tax profits of £734m for 2020, this is a remarkable turn in fortunes from what the business was facing as recently as a couple of months ago.
Retail sector stages recovery
With all the doom and gloom that is dominating sentiment at the moment, as well as the structural problems facing the retail sector, this week’s updates are welcome news for a sector that has had its fair share of problems and is having to make big changes in a very short space of time.
That is not to say that the outlook for the second half isn’t going to be a challenging one, but it’s good to know that there are some retail stocks that are dealing with the various challenges head on, and that is starting to be reflected in their share prices. Other high street names whose share prices are making good progress in reversing their post-Covid losses are the likes of Dunelm and JD Sports.
Next's share price has is now close to double its 52-week low, rising by 160p to 6,330p in the first half-an-hour of trading today. Perhaps the next question is whether Next shares climb back above February levels over 7,000p – if so it would cap a remarkable recovery for Next and the retail sector as a whole.
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