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Next rings alarm over warm weather impact on sales Next rings alarm over warm weather impact on sales
(about 3 hours later)
Fashion retailer Next has warned that it will have to lower its profits guidance for this year if the Indian summer continues throughout October. Retailer Next has fashion sales across the high street could be hit this autumn thanks to the driest September on record.
September is an important month for the industry but, with slower demand for jumpers and coats, Next's sales are currently up 6 per cent in the quarter to the end of October, rather than the 10 per cent previously forecast for the period. The fashion retailer said the warm month has seen sales grow by just 6 per cent compared with an expected 10 per cent and warned it would have to adjust its profit guidance if the unseasonal weather continued throughout October.
It hopes that it will recover some of the lost sales when the weather turns but if the unusually warm conditions continue for the full duration of October it is likely to lower its full-year profit guidance of £775 million to £815 million. The unscheduled announcement took the City by surprise and sent shares plummeting 4 per cent to 6595p, with rivals Marks & Spencer, Debenhams, SuperGroup and Asos falling as investors expected a slew of similar warnings.
The group, which overtook Marks & Spencer with a £695 million annual profits haul earlier this year, had been experiencing its strongest sales growth for many years prior to the slower performance seen in September. Next said it decided to reveal the drop in sales because bosses were due to hold biannual meetings with investors this week and wanted to pre-empt inevitable questions from shareholders over current trade.
Next shares opened 5 per cent lower, while other retailers were also impacted by the update. Marks & Spencer dropped 4 per cent and Sports Direct International fell 1 per cent. It said: “Given the recent spell of unseasonably warm weather it is inevitable that shareholders will enquire about current trade.
Next said the tougher trading in September followed a period of cooler weather in August, which resulted in several very strong weeks for sales. “Cooler weather in August resulted in several very strong weeks, However, warmer weather in the more important month of September has had the reverse effect.”
The company will provide a further update on the third quarter on October 29. The company, which has become one of the biggest high street fashion success stories of recent years, constantly beating its rivals, has seen its shares rise 24 per cent this year. It plans a special dividend.
Freddie George, a retail analyst at Cantor Fitzgerald, has retained his buy rating on the stock and said the underlying trends for Next remain positive, in contrast with the difficult conditions facing M&S and Debenhams. However, it added: “If this unusually warm weather continues for the full duration of October then we are likely to lower our full-year profit guidance range of £775 million-to-£815 million.”
He added: "The impact of the mild weather, which we have been flagging up over the last two weeks, is impacting all retailers in the UK and is only a temporary phenomenon. Some analysts suggested the announcement was a sign of cautiousness from the company and said it was unlikely to make any lasting impact on the retailer.
More follows Nick Bubb, an independent retail analyst, said: “Next are probably being unnecessarily cautious, ahead of investor meetings this week, but the market is unlikely to take any chances.”
Next has managed to distinguish itself from rivals with its successful Directory catalogue, while competitor Marks & Spencer has suffered from a website relaunch which sent sales down initially.
The company has also steered clear of last-minute sales or flash sales.
M&S shares lost 2.1 per cent to 406.5p and Debenhams was down 3 per cent at 58p.