This week I am writing about Next, the fashion retailer that provided a disappointing trading update last week. Next is often regarded as a bellwether for fashion retailers, many of which will provide their own trading updates later this week. Next had hoped to improve on the poor sales it had in the run up to Christmas 2015, which were hampered by understocking of popular items. However, it announced a modest fall in sales for the equivalent Christmas trading period in 2016 and a fall of 7% in the post-Christmas sales promotion period.
As with the rest of the retail sector, Next has had to contend with unusual weather patterns that have made stocking relevant seasonal items challenging. The British consumer is also moving away from spending on fashion, with data indicating people are spending more on leisure and experience activities than high street retail.
Looking forward, management guided towards ‘an even tougher sales environment for the retailers’ in 2017 and suggested a further fall in profits of between 2% and 14% for the year. Uncertainty over rising inflation eroding earnings growth and putting a squeeze on consumer spending were cited as challenges the company faces in the coming year. In an attempt to reassure investors, the group have adjusted its return of surplus cash to four quarterly dividends of equalling amounts.
The consideration for investors is now to assess whether Next is suffering from self-inflicted, company specific issues, or whether their figures are indicative of the wider fashion retailer landscape. It will be interesting to see whether other retailers’ announcements over the coming days shed any further light on this as we move into a very uncertain year for the UK retail sector.