Next reported in its full-year trading update that the results for the last year exceeded all expectations. However, Next cut its profit forecasts and sales forecasts for 2022/23 due the war in Ukraine as well as slowing growth. Next’s total sales increased by 11.5% to $4.9bn in 2018, compared with the same period in 2019/20.
On a two-year basis, retail sales fell by 22.7%, to 1.4bn (up 50.1% from 2020/21), but online sales grew by 44.6%, to 3.1bn, compared to 2019/20 and up 31.1% over last year.
The big picture is we had an excellent year last year. It was better than we expected.
When asked why sales were better-than-expected, he noted: Its better than we were thinking as we got our estimates wrong. We were simply making an educated guess. It’s not like some supercomputer can give us a number with a lot of variables and give us the retail number. Then we go off and look at all those variables to determine which one has changed. We have to make educated and informed predictions about the future of our stores. Although we were pessimistic in the beginning, things have changed.
He also stated that he didn’t foresee the impact on high street competitors closing. One reason potentially is that we underestimated the effect of people leaving high street. [its impact]in our own shops. I believe there are a lot of shops on the high street today compared to two/three years ago. [retailers]That was three years ago. They aren’t here today. This might be more helpful than we expected.
Wolfson said that he anticipates a tough year ahead. We are moving into a very difficult consumer climate as we move into the next calendar year. In many ways the strong comparatives last year make this year even more difficult. We expect a more difficult year than last year.
However, he stated that he could not make an accurate estimate.
We were not familiar with the variables and uncertainties that we were examining, nor have we had any experience with them over the past 20/30 years in terms of inflation in essential goods and our own prices. We have provided an estimate of what our sales for the remainder of the year. This is a collective estimate of what we expect to see, which is approximately 1% more than we saw. Although there is nothing that has been proven to support this estimate, it is based on our experience and intuition. It doesn’t have any science, because science requires history. We don’t have the history to provide the science.
When asked how the situation compares with 2011, the last time incomes were squeezed due to higher petrol prices and food prices, he replied: I think this is more widespread. We saw increases in our own prices of approximately 4-5%. However, I believe what we are seeing now is much different. The rises are sharper. It was always a sharp increase in wages, and that is what made it so difficult. We expect earnings to rise by 8.4%, even though we said they would be up 1% for the rest of the year.
It is important to look at these numbers in order to understand that although we have some insight from 2011 and our history, we have never seen anything like it before and don’t know how it will pan out.
Wolfson explained three changes to the retail industry in Nexts trading updates, which were released earlier today. He said that it was likely that the number of brands will increase as the world recovers from the coronavirus pandemic.
