Next emerges as a Christmas winner

Next is handing its shareholders a special dividend payout after the December cold snap delivered a late rush of Christmas shoppers to its doors.

The retailer said sales were up 2.9% in the two months to Christmas Eve, which was at the top end of revised sales guidance provided by the company when it issued a profit warning in October. Investors welcomed the news, with its shares rising the most in the FTSE 100, gaining more than 3% to £67.25.

“Christmas was definitely back-ended,” said Next chief executive Simon Wolfson. “Part of the reason was the weather was so clement all through November that Christmas almost took people by surprise when it came. As soon as the weather turned cold [at November’s end] we saw our sales move back in line with expectations.”

Sales at Next stores edged up 0.5% during the period, while sales at its Directory home shopping business were up 7.5%, reflecting the growth of buying gifts online. The retailer also enjoyed a strong closing week as Britons flocked to its shops to buy presents in the last few days before Christmas.

“It looks like a last-minute pre-Christmas rush and the strength of Directory saved Next from the impact of all the recent high street discounting,” said independent retail analyst Nick Bubb, who referred to the retailer’s weekly sales graph, which showed that after a difficult November, every week in December was up on the previous year – “culminating in a huge last-minute rush”.

Next is one of the few retailers that does not run promotions before Christmas and, despite the success of one-day events such as Black Friday, Wolfson said he saw no reason to alter its full-price trading stance. “It is what it is,” he said of the raft of pre-Christmas sales. “We just have to make sure our budgets and forecasts are relevant in the context of that environment.”

Its stores and home shopping arm had a “very good day” on Black Friday despite the absence of discounts, he added.

Given the widespread use of price cuts to attract shoppers, Wolfson said it was impossible to say how Next had fared against competitors because “so much volume was driven by discounting”.

Conlumino analyst Neil Saunders said Next’s performance was “solid”, given it was an increase on strong figures a year ago, adding: “The figures are a vindication of Next’s refusal to engage in pre-Christmas discounting.

“While this may have cost Next some sales growth over the reported sales period, we believe that it has not lost it much, if anything, in terms of profits. Indeed, this is reflected in the profit guidance, which is some £5m ahead of where it was in October.”

Saunders said Next’s figures reflected the wider trend over Christmas, with retailers’ sales bolstered by online stores and services such as click and collect.

Next, which was forced to lower its sales and profits guidance after the warm autumn weather hit demand for its winter clothing ranges, said significantly more stock had gone into its end-of-season sale, with clearance rates in line with its expectations. It now expects full-year profits to be between £765m and £785m.

Wolfson also struck a positive tone about the coming year. He said: “The economic outlook for the UK consumer looks relatively benign. Low inflation, an end to real wage decline, healthy credit markets and strong employment all paint a somewhat more positive picture than recent years.”

Next said it remained cautious when drawing up its sales budgets for the new financial year, with the group pencilling in growth of between 2.5% and 7.5%. Profits were expected to grow in line with sales, the company added.

The retailer has been returning cash to shareholders by buying back shares as well as declaring special dividends. It has already paid three special dividends – each of 50p and together worth £223m this year – and on Tuesday confirmed plans for a fourth payout, also set at 50p a share.

Besi analyst Tony Shiret said Next’s performance boded well for Marks & Spencer. He said: “M&S has also tried to restrict discounting and hold full-price until late in the season. Next’s ability to broadly hold profitability should offer some encouragement that M&S will not see material profit forecast reductions following what has clearly been a tough autumn/winter all around the market.”