A “faster and steeper” collapse in retail sales has prompted Next to cancel or delay almost £1 billion worth of stock in addition to scrapping its dividend and share buyback scheme to save costs.
The bellwether retailer warned that it could lose £1.65 billion in sales, about 40 per cent of its usual business, in its revised “worst case scenario” which would drag it to a full-year loss of £150 million, compared to £600 million profit last year.
The new figures are significantly worse than the 25 per cent fall Next predicted last month but the business said that “the retail sector, along with the wider economy, has slowed faster and more steeply than we expected in March”.
Next, which was started in 1982 by George Davies, is considered to be one of the strongest names in the British retail sector. It has about 500 stores in the UK and about 44,000 employees.
The retailer said that the pandemic had led to a 41 per cent slump in full-price retail sales in the last quarter, while shop sales had plunged by 86 per cent in the days leading up to lockdown. Next had originally intended to sell online but it had to shut its warehouse for 18 days to put social distancing measures in place. It initially restricted customers to buying childrenswear and small homewares to limit volumes but said that in the next two weeks it expected to be able to sell 70 per cent of its full range.
Next has also warned that it will lose £50 million from its traditional clearance sales, as it will be more difficult to sell surplus stock if social distancing measures are in place. Its typical end-of-season sales used to draw crowds who would hunt through tightly packed rails of clothes for bargains.
Industry experts have warned that the fashion sector is facing £15 billion worth of stock write-offs and mountains of unsold clothes. Next said that it had saved £290million from cancelling £450 million worth of orders from its suppliers and that it had committed to paying suppliers for goods that had been due to leave factories by April 10. Compensation payments had been made for raw materials for orders after this date. Next said it is also planning to warehouse £330 million worth of basic spring and summer fashion stock, such as chinos and tshirts, until next year. Next said that its combined efforts meant that it was reducing £960 million worth of stock it usually bought.
However, Lord Simon Wolfson of Aspley Guise, 51, chief executive, said that Next was still selecting winter ranges. “There is no point in not buying coats because we have too many T-shirts!” he said.
Unlike other rival retail chains, including Primark, Arcadia and JD Sports, which have demanded rent holidays from landlords while stores are shut, Next said that it was paying its “contractual rent in full and on time but can make significant savings in repairs and cosmetic maintenance costs”.
The retailer said that it had worked through new stress test scenarios and that it was confident that it had enough liquidity to withstand the crisis. Next has shored up its balance sheet by suspending its longstanding share buyback scheme to save £260 million, scrapping its dividend to save £220 million and agreeing with its lenders to waive financial covenants. It has also secured additional borrowing facilities through the government’s Covid corporate financing facility, although it said that it did not anticipate drawing down on this.
“It is hard to think of a time when the outlook for sales and profit has been more difficult to predict,” said Lord Wolfson. “A pandemic of this scale has simply not been experienced by a modern global economy. No amount of information about the past can accurately guide us in our deliberations on the future. Our job is not to guess exactly how things will pan out but to prepare the company for all outcomes that seem reasonably possible.”
Next shares fell 1.9 per cent, or 93p, to £46.93 in morning trading.