A late surge in online sales helped save Christmas for the fashion chain Next, with its better than expected performance helping to lift shares across the battered retail sector.
The high street bellwether is among only a few retail chains that resist pre-Christmas discounting and it was expected to have suffered as struggling rivals slashed prices to attract shoppers suffering Brexit jitters.
In the end Next reported overall sales growth of 1.5% for the last two months of 2018. Its shares, which have been under pressure since November on the back of fears of a poor Christmas, closed up more than 4% at £43.50, the biggest FTSE 100 riser.
Its performance also boosted the share price of rival chains Marks & Spencer, Associated British Foods – the parent company of Primark – and Debenhams.
However, there was a stark divide between the fortunes of Next’s stores and its web operations. The retailer’s high street performance was weaker than expected, with sales down 9.2%, while its online sales jumped 15.2%.
The extra cost of fulfilling web orders as well as higher sales of seasonal gifts, such as beauty products, which have lower profit margins, resulted in Next trimming its annual profit forecast by £4m to £723m for the year to the end of January, a figure that is down slightly on 2018. It also predicted profits would slide again in 2020 to £715m.
“November was very disappointing,” said Next’s chief executive, Simon Wolfson. “It was unusually mild and the sales we lost were on the winter-weight products.”
However, the retailer made up the lost ground in December as sales of winter coats and knitwear took off in the three weeks before Christmas. “To some extent the money that was not spent in November we found was spent in December,” said Lord Wolfson.
Fears the crucial Christmas trading period would be a washout for the country’s retailers were sparked by profit warnings from Asos, Bonmarché and Superdry. The Sports Direct chief executive, Mike Ashley, had also warned that trading in November was “unbelievably bad”.
Industry data for November painted a gloomy picture as high streets suffered the largest drop in shopper numbers for a decade, while the warning from Asos caused a share price rout, suggesting the high street malaise had infected online players.
However, Next’s performance was in keeping with John Lewis, which on Wednesday reported a strong finish to a rollercoaster Christmas trading period, with a bumper December sales fortnight as consumers went on an eleventh-hour spending spree. Despite the gloom Wolfson said consumers were “not in a bad place” as the economic forces that affect spending were “relatively benign”.
Retailers are suffering as rising rents, business rates and wages drive up the cost of running physical stores, at a time when shoppers are increasingly spending online. Last week HMV emerged as the first major Christmas casualty as it collapsed into administration for the second time in six years, putting more than 2,200 jobs at risk.
Peel Hunt analyst Jonathan Pritchard said Next’s figures were reassuring in light of the “Armageddon commentary” that had weighed heavily on retailers’ share prices.
“Christmas did arrive,” said Pritchard. “The last three weeks of December were decidedly positive [for Next] after a stinker of a November, but more sales were online at the expense of in stores. We expect that this will be a trend that we see elsewhere in the sector.”
In September, Next published detailed analysis of the ramifications of a no-deal Brexit on the company. Three months on Wolfson, a Conservative peer and prominent Vote Leave supporter, said key questions, such as how the feared customs logjam at UK and EU ports would be managed, had not been answered by the government.
“I think the government is less prepared than I thought it was and businesses are less prepared than I thought they were,” said Wolfson, who had arrived at the conclusions based on private conversations and the government’s failure to set out the customs procedures and tariff rates it would adopt in a no-deal situation.
“There may well be plans on these things but they have not been published and that makes it hard for businesses to plan,” he said. “If there are secret plans they need to get on and make clear what those plans are.”