Fears of a bleak Christmas trading period among British retailers emerged after former high street darling Next warned of a difficult festive season and a surprise drop in sales.
Almost £1bn was wiped from the clothing and homewares stalwart’s value after shares closed down 14.4pc at £40.85, its worst day’s trading since last March.
The unexpected profit warning – Next said profit for the year to December 24 was likely to come in at £792m, a full £100m below City forecasts – triggered a sea of red across traders’ screens as investors sought to realign positions across the sector.
Marks & Spencer and Debenhams ended the day off 6.17pc and 4.71pc respectively, while ABF, which owns Primark, closed down 3.7pc, and Burberry shed 2.24pc.
Richard Lim, chief executive of consultancy Retail Economics, branded the Next update “miserable” and warned that “underlying conditions on the high street remain desperate for clothing and footwear retailers”.
The grim update – analysts had been expecting a positive performance from the FTSE 100 giant – sent shock waves through the retail sector as Lord Wolfson, Next’s chief executive, warned that 2017 would be even tougher than 2016.
Next is the first major retailer to report how it fared over Christmas, with Marks and Spencer and Debenhams both due to report next week, along with grocers Tesco, J Sainsbury and Wm Morrison.
Lord Wolfson said he anticipated demand for clothing would remain weak: “In a way it doesn’t really matter whether it’s because consumers are spending on other sectors like eating out and entertainment or because they are wary of inflation. What’s important is that we don’t think it is going to get better and so we’re preparing for that.”
He went on to say he expected 2017 to be another challenging year due to a squeeze on consumer spending as inflation eroded real wage growth, and the fall in the value of the pound, which will hit its costs.
As a result, Tony Shiret, analyst at Haitong, said that while Next’s disappointing Christmas sales “would have clearly unnerved the company”, the retail chain was suffering from challenges generic to the rest of the high street: mainly that bricks and mortar shops are missing out as consumers switch to shopping online.
Total sales in the fourth quarter to Dec 24, including markdown sales, were down by 0.4pc, compared to analyst forecasts of a 2pc rise. Next, which refuses to discount until Boxing Day, also said that sales in its end-of-season sale had crashed by 7pc, which has cost the group £3m. Analysts at Peel Hunt referred to the result as “most underwhelming”.
Full-price sales in Next shops declined by 3.5pc during the fourth quarter while its Directory business grew sales by 5.1pc over the period.
Lord Wolfson admitted “all of our growth in the UK comes from us selling other brands rather than the Next brand”. Next’s Label range sells other brands including Lipsy, Boden, Whistles and Ted Baker.
Lord Wolfson denied that the Next brand lacked relevance and said that if the retailer “didn’t sell these brands we are creating competition for ourselves, I think it would be a mistake not to sell them.”
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