TIDMNXT
RNS Number : 4001U
Next PLC
29 July 2020
Date: Embargoed until 07.00hrs, Wednesday 29 July 2020
Contacts: Amanda James, Group Finance Director (analyst calls)
NEXT PLC Tel: 0333 777 8888
Alistair Mackinnon-Musson Email: next@rowbellpr.com
Rowbell PR Tel: 020 7717 5239
Photographs: http://www.nextplc.co.uk/media/image-gallery/campaign-images
This document contains some page and note number
cross-referencing. Please refer to the PDF version of this
statement which is available at
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
or on the NEXT corporate website www.nextplc.co.uk
NEXT PLC
Trading Statement - 29 July 2020
HEADLINES
-- Full price sales in the second quarter were down -28 %
against last year. This is much better than we expected and an
improvement on the best-case scenario given in our April Trading
Statement.
-- Online warehouse picking and despatch capacity is now back at
normal levels and UK and Eire stores are now open.
-- Full year profit before tax, based on our new central sales
scenario, is now estimated at GBP195m(1) .
-- New central scenario year end net debt is forecast to reduce by c.GBP460m.
(1) Profit before tax is quoted on a 52-week basis. The
financial information presented throughout this document does not
reflect the impact of IFRS 16 Leases.
OVERVIEW
As the pandemic retreats, and we learn to operate in a socially
distanced world, we are beginning to better understand both
consumer demand and how the Company's finances will be affected
this year. The key points are:
Sales Warehouse capacity has come back faster than we had
planned, and store sales have been more robust than
anticipated. As a result, our second quarter sales
have been significantly ahead of our internal plan.
Online sales in the second quarter were up +9% and
like-for-like sales in Retail stores, since they re-opened,
were down -32%.
New We have modelled three new scenarios based on full
Stress price sales for the full year being down -18%, -26%
Test and -33%, see page 7. The central -26% scenario is
Scenarios in line with our internal forecast and assumes that
sales in the second half are down -19%.
Cash The Company's cash resources have been enhanced through
a combination of asset sales and the suspension of
dividends and share buybacks. These measures, along
with the cash we anticipate generating from operations,
mean that year end net debt is likely to fall significantly.
Based on our central scenario, year end net debt will
fall by c.GBP 460m to GBP650m, which is comfortably
within the Company's cash resources of GBP1.6bn(2)
and represents 65% of the value of forecast year end
nextpay receivables of GBP1bn.
Profit At our central scenario, we estimate that full year
profit before tax will be GBP195m.
There is still much that remains uncertain and our central
scenario cannot be accorded the same degree of confidence that our
guidance would normally receive at this time of year. The duration
of social distancing rules, post-lockdown consumer behaviour,
earnings, unemployment, and, most importantly, whether there will
be a second wave lockdown, all remain unknowable.
Nonetheless, our experience over the last 13 weeks has given us
much greater clarity on our Online capabilities during lockdown and
the state of consumer demand, and we are now more optimistic about
the outlook for the full year than we were at the height of the
pandemic.
(2) Bond and bank facilities of GBP1.6bn do not include the
Government's COVID Corporate Financing Facility (CCFF). Although
our application to the CCFF was accepted, we do not expect to draw
on this facility.
SALES
Full price sales in the second quarter were down -28%; total
sales (including markdown and clearance sales) were also down -28%.
As would be expected, sales of Childrenswear, Home, Nightwear and
Sportswear along with some adult casual clothing have done much
better than the more formal parts of our adult clothing ranges
associated with work, going out, overseas holidays and large social
events.
Full Price Sales Analysis by Channel by Week
The chart below shows the full price sales by week. Online
product sales are shown in blue, Retail in green and interest
income in grey. Total full price sales for last year are shown for
comparison as an underlaid white bar. As can be seen from the
graph, the situation has steadily improved as lockdown has eased
and in the last six weeks of the season total full price sales have
been down -8%.
Click or paste the following link into your web browser to view
the chart titled 'Full Price Sales by Week'. Refer to page 2 for
this chart.
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
The table below sets out the full price sales performance by
business channel and by quarter versus last year. Retail's
performance in the second quarter is significantly lower than last
year because stores were closed for half of this period,
like-for-like full price sales in re-opened stores were down
-32%.
First quarter Second quarter First half
Full price sales (VAT exclusive) to 25 April to 25 July to 25 July
================================= ============= ============== ===========
Online - 32% +9% - 11%
Retail - 52% - 72% - 62%
Retail like-for-like sales since
re-opening - 32%
============= ============== ===========
Product full price sales - 41% - 29% - 35%
Finance interest income +2% - 11% - 5%
============= ============== ===========
Total full price sales including
interest income - 38% - 28% - 33%
============= ============== ===========
Markdown Sales
Stock was well controlled in the period. A combination of
reduced stock purchases, carefully controlled cancellations and the
hibernation of core lines for next year, meant that we went into
the end of season Sale with only +1% more stock than last year (for
further details see the Appendix on page 12).
Markdown sales(3) were down -12% and worse than the performance
of full price sales in the same weeks, which were down -8%. There
are two reasons for this underperformance. Firstly, in Retail we
did not want to create the large queues normally associated with
our end of season Sale, so we did not advertise the Sale and we
started the event early on a Thursday rather than Saturday to
reduce the risk of overcrowding. Secondly, we limited the stock
available in our Online Sale in line with reduced picking
capacities caused by social distancing.
(3) Markdown sales are defined as Retail store sales plus Online
orders less expected returns. Some of the stock ordered in the
Online Sale will be despatched in Q3.
WAREHOUSE OPERATIONS
Online Warehouse Capacity
Over the last 13 weeks, since closing our warehouses in March,
we have steadily built back our Online picking and packing capacity
to operate at a level commensurate with current demand. This
capacity has been achieved safely and in full compliance with
Government social distancing guidelines.
The solid red line in the graph below shows the volumes of items
picked this year, the dotted red line shows our forecast picking
capacity for the rest of this year (assuming social distancing
measures do not significantly change). For comparison, last year's
picking volumes are given in the shaded grey. We anticipate that
our forecast picking capacity will be higher than last year's pick
volumes throughout most of the second half of this year. The only
material exceptions being the sharp peaks caused by the mid-season
and end of season Sale in September and January respectively.
Click or paste the following link into your web browser to view
the graph titled 'Weekly Picking Volumes - Main Boxed Warehouse'.
Refer to page 4 for this graph.
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
Plans to Improve Capacity in the Second Half
That our warehouses have managed to recover and adapt so rapidly
is testament to the hard work, ingenuity and commitment of our
warehouse management team, our operatives, and our recognised Trade
Union USDAW over the last four months. They have worked together to
ensure the effective and safe operation of warehouses in very
difficult and changing circumstances.
There is more that we can do, and we are taking active steps to
further increase the picking capacity of our Online warehouses
through the introduction of new 24-hour working shift patterns,
along with greater support for warehouse activities in our stores
during peak Sale periods.
The Beneficial Effect of Lower Returns Rates
During lockdown our returns rate has been significantly lower
than last year; this is because the product categories that have
sold well (such as Childrenswear and Homeware) have much lower
returns rates than the areas that have fared badly (such as dresses
and formalwear). In addition, during lockdown, customers were
unable to return items through stores and relied on courier
collections instead. As a result, we believe customers were more
selective when placing orders and ordered items they were more
likely to keep.
The reduction in returns has meant that, in the second quarter,
although we despatched -17% less full price stock than last year we
saw a +9% increase in full price sales. The table below
demonstrates the effect on sales from lower returns.
Second quarter, full price VAT
ex. (GBPm) This year Last year Var %
=============================== ========= ========= =====
Despatches 640 768 - 17%
Estimated returns - 150 - 319 - 53%
========= ========= =====
Net full price sales 490 449 +9%
Returns rate % 23% 42%
Service Constraints
In part, warehouse capacity has come at the expense of our
delivery promise. We are currently operating an 8 pm cut off for
next day delivery (rather than our normal 12 midnight cut off).
This allows us to spread more work into the early hours of the
morning and avoids the normal late night peak working, which
requires staff densities that are not currently achievable whilst
maintaining social distancing rules. As we move to new shift
patterns, we believe that we can progressively move the cut off for
next day delivery to later in the day. We estimate that we can
achieve at least a 10 pm cut off within the next few months.
RETAIL STORE OPENINGS
Retail Sales Pre 15 June
Home stores in England were permitted by the Government to open
before fashion stores. Between 17 May and 14 June our 78 Home
stores took GBP4m of sales on Home products and, on a like-for-like
basis, full price sales were down -37%.
Retail Sales 15 June Onwards
We started to open our fashion stores in England on Monday 15
June and within two weeks 97% of our UK and Eire stores (by
turnover) were open. The chart below sets out the store opening
timeline, from 15 June. The red line shows the number of stores
(left axis) and the blue bars show the percentage of the Company's
Retail sales that these stores account for (right axis).
Click or paste the following link into your web browser to view
the graph titled 'Store Opening Timeline'. Refer to page 6 for this
graph.
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
Retail Like-for-Like Sales from 15 June Onwards
Like-for-like Retail full price sales since 15 June were down
-32%. The weekly and cumulative like-for-like performance is shown
on the chart below. As a general rule, our out-of-town retail parks
have significantly outperformed shopping centres and high street
locations.
Click or paste the following link into your web browser to view
the chart titled 'Like-for-like Full Price Retail Sales Versus Last
Year'. Refer to page 6 for this chart.
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
SALES, PROFIT AND CASH SCENARIOS
The aim of this section is to give shareholders a better
understanding of how the Company's annual cash flow, costs and year
end net debt are likely to turn out in three different sales
scenarios. We have calculated an estimated central scenario, which
is in line with our internal budgets. We have also modelled an
upside and a downside scenario.
The scenarios are valuable in that they give a feel for how the
Company might perform in very different trading environments and
the underlying strength of the Company's finances. But they are a
long way from pinpoint accuracy and these assumptions about sales
and costs need to be treated with some caution. So many factors are
unforeseeable: the progress and development of the pandemic, the
treatments available, the wider economic environment along with
public policy responses both in the UK and overseas, could all make
a huge difference to consumer demand, our supply base and operating
costs.
The steps are as follows:
1. Set out three scenarios for sales performance versus last year(4) .
2. Calculate, for each scenario, the cost of lost sales less any
operating cost savings and reduced nextpay lending.
3. Add cash resources generated by suspending dividends and other corporate measures.
4. Calculate total cash flows, change in year end net debt and the implied profit before tax.
(4) Please note that the values shown in this section for the
changes in sales, costs, and the additional measures to conserve
and generate cash are all relative to last year. This is different
to our April Trading Statement that compared sales, costs and cash
generating measures to our original budget for this year, referred
to in our April Trading Statement as our 'base case'.
1. FULL PRICE SALES SCENARIOS
The table below sets out our revised full price sales scenarios
for the second half and for the full year. The central scenario,
with full price sales in the year being down -26% on last year, is
in line with our internal budget and what we consider to be most
likely at this time. Within that number we are assuming that Retail
will be down -33% and Online sales will be down -7%.
The downside scenario, with full price sales down -33% on last
year, assumes that sales in the second half perform in line with
the first half. This scenario reflects a level of sales decline
that seems most likely if we experience a second wave of the
pandemic along with another lockdown.
The upside scenario assumes a more dramatic recovery and
probably represents the top end of what is achievable with the
stock that is now available for the second half.
Central Downside
Full price sales versus last year Upside scenario scenario scenario
================================== =============== ========= =========
First half - 33% - 33% - 33%
Second half scenario - 5% - 19% - 33%
=============== ========= =========
Full year - 18% - 26% - 33%
2. COST OF LOST SALES, LESS SAVINGS AND REDUCED LING
The table below sets out the cash flow impact of lost sales
after cost saving measures but without the corporate actions we
have taken to conserve or generate cash (such as cancelling
dividends).
Central Downside
Upside scenario scenario scenario
Change versus last year GBPm (e) - 18% - 26% - 33%
======================================= =============== ========= =========
Full price sales (VAT ex) - 700 - 975 - 1,250
Markdown sales (VAT ex) - 95 - 85 - 70
=============== ========= =========
TOTAL LOST SALES (VAT ex) - 795 - 1,060 - 1,320
Reduction in cost of stock (See Note
1) +195 +280 +305
Reduced wages (See Note 2) +120 +140 +165
Other operational cost savings (See
Note 3) +20 +45 +50
Reduced business rates +80 +80 +80
Reduced Corporation Tax +15 +40 +75
NET CASH FROM LOST SALES - 365 - 475 - 645
Inflow from reduction in nextpay
lending +155 +265 +285
=============== ========= =========
NET CASH AFTER REDUCED NEXTPAY LING - 210 - 210 - 360
Cost Scenarios and Variability to Sales
In our central scenario, we anticipate wage cost savings versus
last year of GBP140m and other cost savings of GBP45m. Details of
the forecast savings in the central scenario are provided in the
Appendix, notes 1 to 3.
In the upside scenario, where full price sales improve by
+GBP275m, we expect to incur GBP45m of additional costs which
represents 16% of the additional sales. This increase would reflect
additional staffing, logistics and marketing costs. However, in our
downside scenario as sales reduce our ability to reduce costs
further becomes harder to achieve and we would anticipate saving
only GBP30m, 11% of the value of lost sales.
In all scenarios the wage savings do not include any benefit
from the GBP1,000 (per retained employee) furlough bonus scheme
announced by the Chancellor in July as we do not intend to apply
for this scheme.
Explanation of Change in nextpay Lending
In our upside scenario we have assumed the increased sales are
weighted towards Online, which increases our lending to customers
and so reduces the cash inflow from nextpay lending. In the
downside scenario, we have weighted the sales reduction towards
Retail and so there is a much smaller effect on nextpay
lending.
3. GENERATION OF ADDITIONAL CASH RESOURCES
The table below sets out our forecast for discretionary cash
flows this year versus last year and shows the measures we have
taken to generate and conserve the Company's cash resources. We
have 1) halted shareholder distributions, 2) sold and leased back a
warehouse complex and our Head Office, 3) reduced capital
expenditure and, 4) paused share purchases for our Employee Share
Option Trust (ESOT). As a result, we expect to generate a year on
year cash flow benefit of +GBP690m after accounting for an increase
in pension contributions.
For completeness, the final column of the table shows the
equivalent forecast at the time of our April Trading Statement. The
most significant change since April has been the ESOT loan recall,
which we have reversed during the second quarter due to the Group's
improved cash position.
Jan 21
vs Jan April
20 GBPm forecast
Category Description (e) var GBPm
================= ============================================ ======== =========
We spent GBP19m on share buybacks in
early February but suspended buybacks
once the scale of the crisis became
Share buybacks apparent. +281 +281
Shareholder distributions have been
Dividends suspended until the situation stabilises. +214 +214
================= ============================================ ======== =========
SUB TOTAL Total shareholder distributions +495 +495
We have sold and leased back a warehouse
complex (GBP106m) and our Head Office
Asset sales in Enderby (GBP51m). +157 +155
We are currently forecasting to spend
GBP112m on capital expenditure during
the year, this compares an initial
plan of GBP145m and GBP139m last year.
Against our plan we have cut store
capex by GBP10m, head office by GBP5m
and reduced warehouse capex by GBP18m.
The warehouse capex saving was a result
of lockdown delays rather than a conscious
Capex decision to reduce costs. +27 +39
We suspended purchases of shares into
ESOT purchases our ESOT. +27 +27
The ESOT loan recall transaction that
was completed in May was reversed in
ESOT loan recall July as our cash position improved. 0 +87
The recent revaluation in our final
salary pension fund in June resulted
in a technical deficit of GBP67m. This
has triggered an increase in Company
Pension contributions. - 16 - 4
================= ============================================ ======== =========
TOTAL Total cash flow +690 +799
4. TOTAL CASH FLOWS, CHANGE IN YEAR NET DEBT AND IMPLIED PROFIT
BEFORE TAX
The table below sets out the forecast net cash flows this year
and the reduction in net debt at the end of the year. The last two
lines give our forecasts for (52 week) profit before tax and EBITDA
in each scenario. In all three scenarios we anticipate that the
Company will significantly reduce year end debt and deliver a full
year profit. Please note that the current year is a 53 week year
and the additional week is likely to add a further +GBP12m of
profit to our reported profit number for each scenario.
Upside Central Downside
scenario scenario scenario
GBPm (e) - 18% - 26% - 33%
================================= ========= ========= =========
NET CASH FROM LOST SALES - 365 - 475 - 645
Inflow from reduction in nextpay
lending +155 +265 +285
================================= ========= ========= =========
NET CASH AFTER REDUCED NEXTPAY
LING - 210 - 210 - 360
Cash generated from additional
measures +690 +690 +690
================================= ========= ========= =========
CASH GENERATED VERSUS LAST YEAR 480 480 330
Last year increase in net debt - 16 - 16 - 16
================================= ========= ========= =========
THIS YEAR DECREASE IN NET DEBT 464 464 314
IMPLIED PROFIT BEFORE TAX (52 week) 330 195 15
IMPLIED EBITDA (52 week) 500 365 185
Anticipated Non-Recurring Profit and Loss Items
Within our three profit scenarios there are some material items
that we do not expect to be repeated. Although the values of these
non-recurring items are individually significant, when combined,
the net effect on profit is not material.
As shown in the table below, we anticipate that the profit
generated from the sale and leaseback of properties (forecast at
GBP47m) will be fully offset in the profit and loss account by the
cost of store impairment and an increase in onerous lease
provisions for Retail stores. In addition, based on our central
scenario, we have increased our provisions for unsold stock and
fabric (GBP50m) and we have provided for a potential increase in
bad debt rates (GBP20m). These two costs have been offset by the
GBP80m reduction in business rates.
Central scenario
GBPm (e) profit impact
============================================================ ================
Property profit from the sale and leaseback of properties +47
Property provisions for store impairment and onerous leases - 47
Stock and fabric provisions - 50
Bad debt provisions (see note 4 on page 13) - 20
Business rates reduction +80
Total profit impact +10
Net Debt, Financing and Headroom
Based on the three given sales scenarios, our net debt will have
peaked in February at GBP1.15bn. In our central scenario we expect
net debt to close the year at GBP648m, which would be a reduction
of GBP464m in the year.
The chart below shows our weekly net debt for the first half of
the year and forecast for the second half of the year. As can be
seen, we expect to remain comfortably within our bond and bank
facilities of GBP1,575m in all scenarios. Based on our central
scenario, at the year end, we will have cash resources of GBP477m
and further bank facilities of GBP450m, giving the Group financial
headroom of over GBP900m.
Click or paste the following link into your web browser to view
the chart titled 'Net Debt and Financing'. Refer to page 11 for
this graph.
http://www.rns-pdf.londonstockexchange.com/rns/4001U_1-2020-7-28.pdf
SUMMARY
In summary, the Company is in a much better position than we
anticipated three months ago: consumer demand has held up better
than expected and our Online warehouses have achieved much higher
capacities than we thought possible. Costs have been well
controlled, and we have taken steps to ensure that our balance
sheet is secure.
Whilst much of our time has been focussed on managing the
business through the pandemic, we have not lost sight of the fact
our sector was already experiencing far-reaching structural changes
as consumers increase their expenditure Online. If anything, these
changes are likely to accelerate as a result of the crisis. So, we
have continued to move the business forward, actively investing in
the systems, Online capacity and business ideas that we believe
will be important in a post pandemic world.
INTERIM RESULTS
We are scheduled to announce our results for the first half of
the year on Thursday 17 September 2020.
APPIX:
PROFIT SCENARIOS: STOCK AND COSTS
The following sections provide more detail on how we have
managed stock purchases this year and how we expect our other costs
to change this year versus last year. The figures shown relate to
our central scenario where full price sales for the year are down
-26% on last year. Please note the analysis below compares costs to
last year, which is different to our April Trading Statement which
compared costs to our original budget for this year, referred to as
our 'base case'.
1. Stock Cancellations (GBP280m)
The table below sets out the value of stock, at retail selling
value, that we have either cancelled or deducted from our original
buy budget. This has saved the cost value of the stock, less
compensation paid to suppliers and commission to NEXT Sourcing (our
internal sourcing agent).
GBPm (e)
==================================================== ========
Cancelled stock at retail selling value 450
Reduced future buy at retail selling value 630
========
Total reduction in stock at retail selling value 1,080
Cost of stock saved, less supplier compensation and
NEXT sourcing commission 280
Stock Carried into Spring Summer 2021
In addition to cancelling stock, we have identified GBP150m (at
retail selling value) of Spring Summer 2020 stock that can be
carried forward into Spring Summer 2021. This will represent around
7% of the total Spring Summer 2021 buy. This number is much lower
than we initially anticipated because we have sold more of it in
the second quarter.
2. Wages (GBP140m)
The fall in sales has resulted in lower staffing requirements
across all operations. We forecast that at our central scenario,
wage costs will be -GBP140m lower than last year. This represents
around 20% of last year's wage bill.
We initially furloughed 88% of our staff across the business,
mainly as a result of the closure of our stores and warehouses.
Most staff have now returned to work as the business has reopened.
Around 10% of our staff currently remain on furlough, the majority
of whom are in Retail stores. We anticipate that the vast majority
of these staff will return to work as trade builds in the Christmas
period.
3. Other Operational Cost Savings (GBP45m)
Based on our central scenario, we expect to reduce operational
costs (excluding wage costs) by
-GBP45m compared to last year.
These forecast savings can be split into three categories: (1)
COVID related cost savings (-GBP77m) generated from business
actions following lockdown, (2) COVID related cost increases
(+GBP22m), which have been incurred as a direct result of the
pandemic, and (3) underlying operational net cost increases
(+GBP10m), which are not related to the COVID pandemic. The
following table provides details on the nature of the savings and
increases.
COST AREA Cost versus last year GBPm (e)
====================================================================================== ==============================
COVID COST SAVINGS
Retail and Online marketing, catalogues and photography - 38
Store costs including service charge, repairs and maintenance, electricity, cleaning,
credit
card commission, bags and hangers - 27
Distribution costs - 8
Overseas travel costs - 4
====================================================================================== ==============================
SUBTOTAL: COVID COST SAVINGS - 77
COVID COST INCREASES
Store and warehouse set up costs for ensuring a safe COVID environment for both staff
and
customers +10
Additional storage costs in the UK +3
Unrecovered international Online distribution surcharges +9
====================================================================================== ==============================
SUBTOTAL: COVID COST INCREASES +22
UNDERLYING OPERATIONAL COST INCREASES VERSUS LAST YEAR
Includes increased investment in systems costs and warehouse infrastructure, offset
by reductions
in store rents achieved on lease renewal +10
TOTAL CHANGE IN COSTS VERSUS LAST YEAR - 45
4. Additional Bad Debt Provision
We have not experienced any change in the speed at which
customers are paying down their accounts versus last year or
observed any material change in default rates. However, we have
increased our bad debt provisions by GBP20m to account for any
defaults that may occur as furlough schemes come to an end later in
the year.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
TSTFVLLLBDLZBBZ
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