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Next warns on coronavirus despite full-year sales growth

Fashion retailer Next has warned that sales could plummet in the coming weeks and months as the UK battles the coronavirus pandemic, despite posting strong results for the year ended January 2020.

Next full price sales were up 4% during the period, and brand total sales (including markdown sales) were also up 3.5% on last year.  Additionally, group profit before tax increased by 0.8% and earnings Per Share (EPS) were up 5.6% on last year.

The retailer said the group profit of £728.5m was just ahead of the guidance of £727m given in its January 2020 Trading Statement, due to “better than expected” full price at the start of the year.

However, with regards to the ongoing coronavirus crisis Next said when the pandemic first appeared in China it assumed the threat would be to its supply chain.

The retailer stressed that it is now “very clear” that the risk to demand is by far the “greatest challenge [it faces]” and added it will need to prepare for a “significant downturn” in sales for the duration of the pandemic.

Next conducted a financial ‘stress test’ which gave the likely cash and profit impact for different levels of sales decline. The scenarios model full price sales anticipates losses of £445m, £820m and £1bn respectively, representing declines of 10%, 20% and 25%, for its annual turnover.

The test also found that the business could “comfortably sustain” the loss of more than £1bn (25%) of annual full price sales, without exceeding its current bond and bank facilities.

Next did note that online sales are likely to “fare better” than in-store, but would nevertheless also suffer “significant losses” as the retailer said “people do not buy a new outfit to stay at home”.

A statement by Next read: “Our sector continues to experience profound and lasting structural changes and these changes are not on hold. Indeed it is possible that the pandemic may accelerate the transition to online shopping. So we cannot afford to neglect our continuing efforts to transform every part of our business.

“It is the delivery of new product ranges, web systems, fulfilment methods, marketing techniques, warehouse capacity, business ideas, partnerships and more that will determine our longer term destiny.  That requires a culture that embraces change and is not afraid to take risks – no mean feat in a crisis.”

It continued: “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 securing the cash resources of the business and moving the business forward that will make the difference to the long term future of the company.”

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