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Next Raises Guidance; Warns Of Price Rises

Next - William Frost Way 725 x 500

Next PLC has published interim results for the six months ended July 2021.

Performance in the Six Months to July 2021

  • Brand full price sales1 up +8.8% versus 2019 (and +62% against 2020).

  • Profit before tax of £347m, up +5.9% versus 2019.

Sales Performance in the Last Eight Weeks

  • Full price sales in the last eight weeks were up +20% versus 2019, materially exceeding our expectations. This compares with our previous guidance for the second half of +6%.

Upgraded Guidance for the Full Year to January 2022

  • We are increasing our full price sales guidance for the rest of the year to be up +10% versus 2019.

  • Forecast profit before tax (post-IFRS 16) now £800m, up +6.9% versus 2019 and +£36m ahead of our previous guidance of £764m.

  • Year end net debt forecast at £610m, a reduction of £502m against two years ago.

  • Earnings Per Share forecast to be 516.9p, up +9% versus two years ago.

Financial Summary 

Brand full price sales in the first half were up +8.8% on 2019 and Brand total sales(3) (including markdown and Total Platform sales) were up +8.4%. On a statutory basis, total Group sales were up +5.2%. Profit before tax (post-IFRS 16) was £347m, which was up +5.9% versus two years ago.

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3 Total sales are VAT exclusive sales including the full value of commission based sales (refer to Note 3 of the financial statements)

4 Profit by division in July 2020 and 2019 is re-stated for IFRS 16

5 Other includes Franchise, Lipsy and other Group costs


There are four big uncertainties as we move forward into the second half of the year. The first is an internal question about the stability and future performance of the new Online customer base
recruited during lockdown. The other three questions relate to the external environment, and the
extent to which stock shortages, inflation and labour shortages might affect the months ahead.

Are lockdown customers here to stay?
There is a possibility that customers recruited during lockdown, having been forced by necessity to shop online during the pandemic, will spend less, and not be as loyal as the pandemic recedes. It is too early to give a definitive answer to this question, but the evidence we have is encouraging. It suggests that the retention and re-order rates of customers recruited during lockdown are at least as good as customers recruited in more normal times, if not better.

Will stock shortages materially affect the business this year?
Disruption to our supply chain means that stock levels are lower than planned and, currently, 12% down on two years ago. These stock levels are far from optimal and have noticeably affected sales in some categories and in stores. However, our recent over-performance would  imply that the business as a whole has not materially suffered, perhaps because, with so much choice available, it is easier to find alternatives on our website. The situation is currently improving and we expect stock to return to more normal levels by December.

Is cost price inflation pushing up our prices?
Average selling price inflation in the current season is running at around 2%, with price rises focused mainly on larger Home products. This inflation, driven by rising shipping costs, is more than we would like but, we believe, not enough to materially restrain sales. Looking to next year we anticipate selling price inflation of around 2.5% in the first half and that inflationary pressures in shipping will begin to ease as we move through the second half of next year. 

Will labour shortages affect our operations?
Generally, we have not experienced difficulties in recruiting staff, particularly in our stores. Our main concern is staffing for the seasonal peaks in warehousing and logistics. Without the contribution of overseas workers to assist with these peaks, we suspect customer deliveries may take longer to arrive as we go into the peak trading season. 

Source : Insight DIY Team and Next PLC

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29 September 2021

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