LONDON — Sales at High Street fashion retailer Next fell by 2.5% in the first quarter, with sales at its physical stores collapsing 8.1%.
The retailer on Thursday cut its forecasts for sales and profits this year after a tough start to the year.
Next said in a trading update on Thursday that total sales fell by 2.5% at the start of the year, while the sale of full-price clothing fell by 3%. Full price sales collapsed at the retailers High Street stores, with only a strong performance at its directory business helping to stop the nosedive. Directory sales were up 3.3% in the quarter.
The performance is in-line with Next’s forecasts and the retailer says that March and April were better months than February, helped by a later and warmer than usual Easter.
But the sales decline is a far cry from Next’s past performance. The retailer has outperformed the wider market consistently since 2010 but suffered its first fall in profits since the recession last year. Next’s share price collapsed 14% when it warned at the start of the year that profits were likely to fall again this year.
Next says on Thursday: “The UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero.”
Next on Thursday also trimmed forecasts for profit and sales this year. The retailer had said profits could be between £680 million and £780 million but has now capped that range at £740 million. Even if Next manages to hit the top end of its forecasts, it would represent a 6% fall on last year’s profits.
As for sales, Next now thinks sales growth is almost impossible this year. The retailer had forecast a possible performance range of -3.5% to +2.5%. On Thursday it revised that range down to -3.5% to +0.5%.
The news had led to shares opening down over 5% on Thursday morning. Here’s how the stock looks after just over 10 minutes of trade in London:
Next is not alone among retailers in feeling a squeeze, as inflation and low wage growth leaves consumers poorer than they have been in years. UBS said in a note last month it is seeing a “dramatic reduction in consumer discretionary income and intention to spend,” and the investment bank said it expects 2017 to be a crunch year for clothing retailers.
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