Profit rises at Next as company prepares for coronavirus impact

Profit and sales are up at Next, according to results for the year ending January 2020, though retail sales have declined.

The company posted a group profit of £728.5m, increasing from £722.9m. Meanwhile total group sales grew from £4.22bn in the year prior to £4.36bn. Though online sales jumped to £2.146bn from £1.918bn, retail sales dropped 5.3% from £1.955bn to £1.851bn.

Profit before tax increased to £728.5m from £722.9m

Announcing its results, Next also noted actions it is taking due to the risks coronavirus poses to the business: “When the pandemic first appeared in China, we assumed that the threat was to our supply chain. It is now very clear that the risk to demand is by far the greatest challenge we face and we need to prepare for a significant downturn in sales for the duration of the pandemic.

“We have no experience of a similar crisis so there is no way of predicting the extent that the effect coronavirus will have on our Retail and Online sales. It is not yet clear how widespread the virus will be at any one time, how long the pandemic will last and what the medium to long term effect of this pandemic will be on consumer behaviour.”

Next continued to say that the evidence it has from sales to date in the UK and from international websites in the worst affected countries shows that demand will be the biggest issue and although the virus is likely to impact operations, it does not believe this will be as damaging as the very significant drop in sales sustained both in retail and online.

Next also noted that is expects online sales to fare better than retail but that they will also suffer significant losses. “People do not buy a new outfit to stay at home,” Next said.

The company added that some product areas are likely to fare better than others: “To date, our homeware and childrenswear sales appear to be less affected than our adult clothing lines.”

Next continued: “Our priority is to do all we can to keep our workplaces and shops as safe as possible for customers and staff. At the same time we must prepare the business for varying levels of sales declines. To that end we have modelled the effects of differing levels of sales declines along with all the measures we can take to ensure that the Company remains within its bond and bank facilities.”

“One thing we can be sure of, at some point the pandemic will pass and when the dust settles it will be the work we have put into (1) securing the cash resources of the business and (2) moving the business forward that will make the difference to the long term future of the Company,” Next said.

Following a stress test presenting the likely cash and profit impact for different levels of sales decline as a result of the outbreak, the firm has highlighted potential sales losses of up to £1bn.