Next Increases Guidance as Half Year Sales Rise

Next plc has published a half-year trading update.

Performance in the First Six Months

• Full price sales1 up +7.7%, total sales including markdown up +8.9%. Group sales2 (including subsidiaries) up +9.0%.
  
  
• NEXT Group profit before tax3 £569m, up +10.5%. 

Guidance for the Full Year

• We have increased our profit guidance for the full year by +£12m to £1,255m.  The increase is the result of a small upgrade in sales expectations and some additional cost savings, mainly in warehousing.  

SUMMARY OF SALES AND PROFIT FOR THE FIRST HALF

A better than expected half

The first half was much better than we originally anticipated, both in the UK and overseas.  Growth did not come at the expense of profitability, and the Group’s pre-tax net margin increased by +0.3% to 16.1%.  The table below sets out our full price sales performance for our main trading divisions versus our March guidance.
 

The performance in the first half is all the more unexpected given the strength of sales last year.  The final column shows the growth versus two years ago, up +20.7%.  It is important to acknowledge that part of this overperformance has been the result of two unusually warm summers in the UK. The rest of the overperformance is, we believe, largely the result of fulfilling the aims we outlined at the beginning of the year.

Product, international, infrastructure and costs

Our aims are not new; for a number of years we have been talking about four ambitions that are central to our plans for growth: improving product, driving international growth, upgrading infrastructure and controlling costs.  We believe that much of the success we achieved in the first half rests on the progress we have made in these areas.

No grand plan

It is important to stress that the progress we have made is not the result of a carefully drawn up strategy devised in the boardroom and dutifully implemented across the Group. 

NEXT is not a command-and-control operation.  Our overall ambitions are very clear, but they are fulfilled, and to some extent shaped, by hundreds of initiatives and decisions taken by colleagues across the Group. That might sound like corporate anarchy.  It is not, because there are two guiding principles that sit at the heart of everything we do. 

TWO GUIDING PRINCIPLES

Create value

We must only deliver products and services that we can honestly say create value for customers.  If we break that rule we will build our profits on weak foundations.  Everything must pass the simple test: would you genuinely recommend this product or service to your friends?  Then it is about talented people making good decisions – in short, executing well.

Follow the money

Sales growth must achieve one overarching financial goal: the delivery of sustainable long-term growth in earnings and dividends per share.  Every activity we undertake – from new warehouses and marketing campaigns to the launch of new brands – must be assessed in terms of its potential profitability and return on investment.  We do not indulge in projects that some might think are ‘strategic’ but offer little hope of high returns or healthy margins. 

But there is a trap here: “following the money” could be taken to mean that we should only undertake projects where profits are already visible.  In a business that should be constantly trying new things, that would be a mistake – we want people to take risks.  But every project must have the potential to make money.  When trials deliver great returns, chase success as hard as you can; when they do not, cut your losses, fail fast and take a little time to understand what went wrong.

An organisation that thinks for itself

It is the combination of clear aims, well-understood guiding principles and talented people that creates the organisation we aspire to be – one that thinks for itself. 

1 Full price sales include all items sold in NEXT Retail Stores and NEXT Online, including third-party brands, plus NEXT Finance interest income, but excludes Sale events, Clearance, Total Platform commission and sales from subsidiaries.   

2 Total Group sales are the sum of total sales (full price and markdown) from all of the Group’s divisions plus revenue from subsidiaries and investments. Revenue from investments is based on our share ownership, e.g. we own 74% of Reiss so we report 74% of their sales.  See page 20 for a bridge between Group sales and statutory revenue.     

3 NEXT Group profit before tax excludes: (1) the cost of brand amortisation and (2) the profit attributable to shares that we do not own in subsidiary companies. 

Source : Next plc

Image : Next plc

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