COVID-19: Next’s £58m lockdown hit takes shine off Christmas sales performance

Next has pencilled in a £58m lockdown hit to profits – taking the shine off a better than expected sales performance over Christmas boosted by demand for children’s clothes and casual wear.

The closure of 90% of stores this month is expected to knock £18m off its bottom line with a further £40m hit on the assumption that closures continue into February and March.

Next reported a 1.1% fall in full-price sales for the nine weeks to 26 December – with a 43% collapse in demand in stores nearly made up for by a 38% increase for online.

That was much better than the 8% overall decline for the period that the retailer had expected.

Shares rose 8% in early trading.

Next sounded a further gloomy note about the performance of stores, saying it has previously been “overly optimistic” about them.

It now expects to see annual sales declines “for the foreseeable future” and will take a further £40m charge against the value of its stores, taking the total to just under £100m for the year.

The retailer also revealed that it had seen supply disruption as the pandemic affected shipping from the Far East – with many deliveries currently running two to three weeks late – but said it had not experienced problems due to Brexit.

A week-by-week breakdown of the latest sales period showed how demand bounced back after November’s lockdown in England ended but took a further hit as Tier 4 restrictions came into force days before Christmas.

Next said products that did well were children’s clothes, home ware, loungewear and sportswear while those that did badly were work and party outfits – mirroring trends seen earlier in the year.

The group is now pencilling in a full-year pre-tax profit of £342m for the year to January, less than half of the £728m reported for the previous year, with sales expected to be 16% down.

For 2020/21, Next expects annual profits to recover to £670m with sales returning to the same levels of two years before.

The retailer is the latest to try to put a figure on the impact of lockdowns on business with Primark owner Associated British Foods saying last month that it expected a £650m sales hit and Mike Ashley’s Frasers Group – owner of House of Fraser and Sports Direct – issuing a profit warning.

Both of those came ahead of the January lockdown announcements.

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