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Next profits fall 8% after 'most challenging year in 25 years' Next chief calls 2017 'toughest in 25 years' as profits slide by 8%
(about 7 hours later)
The boss of Next has described 2017 as the toughest year in the past 25 years as the retail giant posted its second consecutive fall in annual profits. The chief executive of Next has described 2017 as the toughest year in the past 25 years as the retail chain posted its second consecutive fall in annual profits.
In further signs of pain on Britain’s high streets, Next reported an 8.1% drop in annual pre-tax profits to £726.1m, while total sales slid 0.5% to £4.1bn. Simon Wolfson said a tough clothing market as well as Next’s failure to stock enough wardrobe staples were behind the 8.1% drop in annual pre-tax profits to £726m. The Conservative peer described 2017 as an “uncomfortable year” that had forced Next to “take a fresh look at almost everything we do”.
Sales were dragged lower by a 7.9% slump in revenue at its shops to £2.1bn, while online revenue grew 9.2% to £1.88bn, helping to soften the blow. “In many ways 2017 was the most challenging year we have faced for 25 years,” said Wolfson. “A difficult clothing market coincided with self-inflicted product ranging errors and omissions.
Next pointed to “product ranging errors and omissions” as contributing to the poor showing, a result of the firm failing to provide customers with key items, as well as the shift away from consumer spending on clothing.
Next’s chief executive, Simon Wolfson, said: “In many ways 2017 was the most challenging year we have faced for 25 years.
“A difficult clothing market coincided with self-inflicted product ranging errors and omissions.
“At the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating structural shift in spending from retail stores to online.”“At the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating structural shift in spending from retail stores to online.”
Consumers and businesses have also been hammered by rising Brexit-fuelled inflation, with Next having to pay up to 12% more for its products as a result of the pound’s post-referendum slump. Total sales at the clothing and homeware chain was down 0.5% to £4.1bn. Sales were dragged lower by a 7.9% slump in revenue at its shops to £2.1bn, while online revenue grew 9.2% to £1.88bn, helping to soften the blow.
It raised shop prices 4% as a result last year, but Next said it expects some relief towards the end of the year as inflation eases. In 2016 the retailer tried to speed up the way it puts together its clothing ranges to compete better with rivals such as Zara, H&M and Primark, which take weeks rather than months to take clothes from the design stage to the stores. But Wolfson later admitted that the focus on speed had led to errors in its ranges which ended up including too many fashion lines and not enough of the affordable “easy-to-wear” basics that it sells in huge volumes.
Next also warned that 2018 will remain tough as the sector remains under intense pressure, saying the “wider economy, clothing market and high street look set to remain challenging”. Wolfson said Next was now much happier with its collections and expected its sales performance in the first quarter to be flattered by the weak figures it posted for 2016.
George Salmon, an equity analyst at Hargreaves Lansdown, said: “The headwinds facing the clothing sector, which include cost inflation, weak high street footfall and tighter consumer spending, are well known. Despite Wolfson’s cautious tone, profits are expected to fall again this year, Next’s shares closed the day up nearly 8% at £49.84 as the City was relieved by his reading of the economic runes which suggested there was at least some light at the end of the tunnel. Price inflation and the squeeze on consumer spending were expected to lessen in the coming year, he said, adding: “We are not hanging out the bunting but the picture in the year ahead doesn’t look as difficult as the one we have just been through.”
“However, the fact Next says it’s endured the toughest year since its near-death experience in the early 1990s, underscores the extent of these challenges.” Consumers and businesses have been hammered by Brexit-fuelled inflation, with Next having to pay up to 12% more for its products as a result of the pound’s post-referendum slump. Next hikes its clothing prices by 4% last year, but Wolfson expected that price inflation would be eliminated later this year.
The figures come at a time of growing concern for bricks-and-mortar retailers. George Salmon, an equity analyst at Hargreaves Lansdown, said: “The headwinds facing the clothing sector, which include cost inflation, weak high street footfall and tighter consumer spending, are well known. However, the fact Next says it’s endured the toughest year since its near-death experience in the early 1990s, underscores the extent of these challenges.”
As well as the administrations of Toys R Us and Maplin, Debenhams, Mothercare and Carpetright have all issued profits warnings this year. The figures come at a time of growing concern for bricks-and-mortar retailers. As well as the administrations of Toys R Us and Maplin, Debenhams, Mothercare and Carpetright have all issued profits warnings this year.
To compound matters, a spate of firms including Jamie’s Italian, burger chain Byron and Prezzo have shut hundreds of stores as consumer confidence dives in the face of Brexit-fuelled inflation. Wolfson said the leases on 240 of Next’s stores would come up for renewal over the next three years giving it the option to either close stores or negotiate cheaper rent deals with landlords. “Obviously we will ask [for cheaper rent] but we won’t get it on all of them,” he said.
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