TIDMNXT
RNS Number : 5226K
Next PLC
05 January 2021
Date: Embargoed until 07.00hrs, Tuesday 5 January 2021
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
NEXT PLC
Trading Statement - 5 January 2021
This document contains page cross-referencing. Please refer to
the PDF version of this statement which is available at
http://www.rns-pdf.londonstockexchange.com/rns/5226K_1-2021-1-4.pdf
HEADLINES
-- Full price sales in the nine weeks to 26 December were down
-1.1% on last year and much better than our central guidance
of -8%, given in our October Trading Statement.
-- After accounting for the benefit of better sales in November
and December and anticipated losses from store closures
in January, full year profit before tax is forecast to be
GBP370m(1) before two additional non-recurring items.
-- A non-recurring profit of +GBP12m from a 53rd week, along
with an additional property provision of -GBP40m (see page
6), mean that total full year profit before tax is forecast
to be GBP342m.
-- Year end net debt is forecast to reduce by GBP487m to GBP625m.
-- For the year ahead (2021/22) our central guidance, which
assumes our Retail stores will be closed in February and
March, is for profit before tax of GBP670m, based on full
price sales being flat versus two years ago (i.e. 2019/20).
(1) Profit before tax is quoted on a 52-week basis. The
financial information presented in this document does not reflect
the impact of IFRS 16 Leases.
FULL PRICE SALES TO 26 DECEMBER
In the nine weeks to 26 December, the sales gained in our Online
business compensated for almost all those lost in Retail stores,
with total product full price sales down just -0.5%. The table
below sets out the full price sales performance by business channel
versus last year for the fourth quarter, second half and year to 26
December.
Fourth quarter Second half Year to
Full price sales (VAT exclusive) to 26 December to 26 December 26 December
================================= =============== =============== ============
Online UK +36% +30% +9%
Online Overseas +43% +31% +13%
=============== =============== ============
Online total +38% +30% +10%
Retail - 43% - 30% - 46%
=============== =============== ============
Product full price sales - 0.5% +1.8% - 16.5%
Finance interest income - 13% - 13% - 8%
=============== =============== ============
Total full price sales including
interest income - 1.1% +0.9% - 15.9%
=============== =============== ============
Full Price Sales by Week
The chart below shows full price sales by week by sales channel.
Retail sales are shown in green, Online product sales are shown in
blue and interest income in grey. The dotted black line shows the
total full price sales for last year.
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/5226K_1-2021-1-4.pdf
Product and Sales Trends
The effect of the pandemic on the shape of our business in the
fourth quarter was very similar to the effect during the rest of
the year. The paragraphs below set out the main points.
Products that did Childrenswear, Home, Loungewear and Sportswear.
well
Products that did Adult clothing for work, parties, events and
badly going out.
Returns rates Returns rates continued to be much lower than
last year (21% compared to 36% last year).
Of the 15% movement, 10% came from the change
in product mix (i.e. the categories that did
well have lower returns rates than those that
did badly). The remaining 5% fall came from
customers being more selective when placing
their initial order.
Retail Parks versus Stores located in out of town Retail Parks
other stores continued to perform around 15% better than
those in city centres and shopping centres.
Online Customers
Total Customers
The number of active customers has grown significantly during
the year and, as at 26 December, our Online customer base was up
24% on last year. The growth was driven by new UK and Overseas cash
customers. Cash customers are customers who do not use a NEXT
credit account.
Active customers as at 26 December
(m) 26 Dec 2020 26 Dec 2019 Var %
=================================== =========== =========== ======
UK credit 2.71 2.65 +2.2%
UK cash 3.58 2.40 +49.3%
=========== =========== ======
Total UK 6.29 5.05 +24.6%
Overseas (all overseas accounts
are cash) 1.91 1.56 +22.4%
=========== =========== ======
Total 8.20 6.61 +24.1%
Credit Customers
We experienced a steep reduction in the number of credit
customers during the first lockdown as a result of (1) the two week
closure of our website, (2) a change in product mix towards
categories that attract lower levels of credit usage and (3)
reduced Sale activity. During the second half, credit customers
recovered and the total number is now slightly ahead of last year
at +2%. The graph below shows the change in credit customer numbers
by month along with the growth of the credit customer base versus
last year (red line, right hand axis).
Click or paste the following link into your web browser to view
the graph titled 'Credit Customer Changes by Month'. Refer to page
3 for this graph.
http://www.rns-pdf.londonstockexchange.com/rns/5226K_1-2021-1-4.pdf
Interest Income, Credit Sales, Payment Rates and Receivables
Balance
Finance interest income fell by -13% in the nine weeks to 26
December, driven by lower average customer balances, which were
down -15% on the previous year. The paragraphs below explain the
changes in credit sales, payments and receivables throughout the
course of the year.
Credit The initial lockdown significantly reduced credit
sales sales but they recovered through the second half,
as shown in the following graph.
Click or paste the following link into your web browser to view
the graph titled 'Credit Sales versus last year'. Refer to page 4
for this graph.
http://www.rns-pdf.londonstockexchange.com/rns/5226K_1-2021-1-4.pdf
Payments Payment rates reduced during the first lockdown but
recovered by June and have remained significantly
ahead of last year throughout the second half. The
following graph shows the change in monthly customer
payments as a proportion of their outstanding balances,
versus the previous year(2) . For example, in December
last year customers paid off 12.2% of their balance,
this year they paid 15.5%, so the proportion of balance
paid increased by +28%.
Click or paste the following link into your web browser to view
the graph titled 'Payments as a % of balance versus last year'.
Refer to page 4 for this chart.
http://www.rns-pdf.londonstockexchange.com/rns/5226K_1-2021-1-4.pdf
Receivable Receivable balances fell significantly in the first
balances half as credit sales declined. In the second half,
the effect of increasing credit sales was partially
offset by increasing payment rates.
Click or paste the following link into your web browser to view
the chart titled 'Receivable balances'. Refer to page 4 for this
graph.
http://www.rns-pdf.londonstockexchange.com/rns/5226K_1-2021-1-4.pdf
Default Default rates continue to remain below last year
rates and as yet, we have not seen any deterioration in
the quality of our consumer debt. However, with current
levels of economic uncertainty, we are maintaining
the additional GBP20m bad debt provision that we
charged in the first half.
(2) In calculating this measure we compare payments as a
percentage of the opening receivables balance.
End of Season Sale
Stock was well managed and surplus stock going into our
end-of-season Sale was down -12% on last year. We expect clearance
rates to be down -4.8%, in line with the guidance we gave in
October, which anticipated lower footfall in our Retail Sale.
The closure of around 50% (by sales value) of our Retail stores
limited our capacity to clear Sale stock in our traditional Boxing
Day Retail Sale. To mitigate these closures, we significantly
increased the amount of Retail Sale stock available to order in our
Online Sale. We now estimate that we will clear around 25% of our
Retail Sale stock through Online sales. However, the cost of
clearing stock will be GBP5m higher than anticipated as the
marginal cost of clearing stock Online is higher than in Retail
stores.
FULL PRICE SALES, PROFIT AND CASH GUIDANCE FOR THE CURRENT
FINANCIAL YEAR
Profit gained from the overperformance in November and December
has been almost entirely offset by:
-- The anticipated loss of full price Retail sales in January
due to the lockdown closure of 90% of our stores (by value).
-- The additional costs we have incurred clearing more of our
Retail end-of-season Sale stock Online.
For the purposes of this estimate we have assumed that 50% of
the lost Retail sales in January are recouped Online. This would
result in total full price sales in January being down -14%. We now
expect total full price sales (including interest income), for the
full year (2020/21), to be down -16%.
There are two additional non-recurring items that need to be
accounted for. This year is a 53-week year which will add an
estimated GBP12m to profit. In addition, we have decided to take
further property provisions of GBP40m (see explanatory paragraph
below). So overall our new central guidance for full year profit
before tax is GBP342m.
The table below walks profit forward from our October central
scenario and demonstrates how we have arrived at our latest
guidance.
Full year estimate to January 2021 Profit walk forward
================================================== ===================
Previous guidance given in October central
scenario GBP365m
Additional profit from full price sales beat
(-1% vs -8%) +GBP28m
===================
Profit before tax before effects of post-Christmas
lockdown GBP393m
Additional costs of end-of-season Sale - GBP5m
Loss of profit from lost January sales - GBP18m
===================
52-week profit before tax GBP370m
Profit from 53rd week +GBP12m
Estimated increase in Retail property provisions - GBP40m
===================
53-week profit before tax GBP342m
===================
Reduction in year end net debt GBP487m
Year end net debt GBP625m
===================
Estimated Increase in Retail Property Provisions
We have reviewed the level of provisions that we hold for store
impairment and onerous leases. In previous years, we assumed that
store sales would decline for one more year and remain flat
thereafter. We now believe this is overly optimistic and we are
forecasting annual like-for-like sales declines for the foreseeable
future. So we are now providing for store-level losses in shops
that we believe will become unprofitable at any point up to the end
of their leases.
Subject to final confirmation with our auditors, we estimate
that our property provisions will increase by circa GBP40m compared
with our October central scenario. This will bring our total
property provisions in the year to just under GBP100m. This
provision will be a non-recurring, non-cash cost. For the full
effect of all non-recurring costs in the year please see Appendix
1.
OUTLOOK FOR SALES AND PROFIT IN THE YEAR AHEAD
The continued uncertainty caused by the COVID pandemic, and its
potential economic impact, mean that it is harder than ever to
predict sales and profits for the year ahead. So the guidance
ranges we are giving for the coming year are wider than usual, but
at least give shareholders an understanding of how the profits of
the business would respond to different levels of sales growth.
In addition to the closure of shops, the pandemic has adversely
affected the flow of container traffic from the Far East. At
present many of our deliveries are running two to three weeks late
and we expect this level of disruption to continue into the new
year. Our stock levels are currently down
-10% versus two years ago (January 2019). We expect stock levels
to steadily improve and return to more normal levels by the end of
March.
Full Price Sales and Profit Guidance for the Year Ahead
The table below sets out three full price sales and profit
scenarios for the year ahead. The central scenario assumes that all
our stores will remain closed for the first eight weeks of the
financial year (i.e. until the last week of March). We have assumed
that 50% of the lost Retail sales will be recouped Online. Within
our central scenario, we believe that the loss of sales from the
closure of stores in February and March (net of the gain in our
Online business) will reduce profit by around GBP40m.
Please note that next year's guidance is given relative to two
years ago (2019/20), providing a more meaningful comparison than
the current, COVID stricken, financial year.
Upside Central scenario Downside
Versus year ended Sales exceed our Some disruption Significant disruption
January 2020 expectations throughout in the 1st half, in 1st half and
the year recovering in subdued sales
the 2nd half throughout the
year
==================== ========================== =================== =========================
First half sales +2% - 3% - 7%
Second half sales +6% +3% +0%
========================== =================== =========================
Full year sales +4% + 0% - 3.5%
Profit before
tax GBP735m GBP670m GBP600m
BREXIT
We have not experienced any disruption as a result of Brexit and
all our new systems required for Brexit have been implemented and
are now operational. We do not anticipate that Brexit will have a
material impact on our ability to import and export stock in the
year ahead.
Following the announcement of the free trade deal between the UK
and EU, we do not anticipate any increase in customs duty costs in
the year ahead.
FULL YEAR RESULTS ANNOUNCEMENT
We are scheduled to announce our results for the full year
ending January 2021 on Thursday 1 April 2021.
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.
Appendix 1: Non-Recurring Profit and Loss Items
In the table below we have set out the significant,
non-recurring profit and loss items that are included within this
year's profit forecast.
In total, on a 52-week basis, non-recurring items are expected
to reduce profit by -GBP22m. After accounting for the additional
profit generated from the 53rd week, profit is expected to reduce
by -GBP10m.
Full year profit impact GBPm (e) New central guidance
============================================= ====================
Business rates reduction +80
Property profit from the sale and leaseback
of properties +44
====================
Subtotal: Benefits to profit +124
Property provisions for store impairment
and onerous leases - 97
Stock and fabric provisions - 29
Bad debt provisions - 20
====================
Subtotal: Costs to profit - 146
====================
Total profit impact from non-recurring items
(52 weeks) - 22
Profit from 53rd week +12
====================
Total profit impact from non-recurring items
(53 weeks) - 10
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END
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