Next's full-price sales were up 4.0% in the third quarter, ahead of market expectations. This was driven by 6.5% growth in its Online channel, which offset a marginal decline in Retail.
Sales were closely linked to weather conditions, improving during a cooler-than-average August which more than made up for a decline during a hotter-than-average September.
As a result of a better-than-expected third quarter, full-year full-price sales are expected to grow 3.1% to £4.74bn. Full-year pre-tax profit guidance has been nudged up again, now expected to come in £10m higher at £885m.
The shares rose 3.6% following the announcement.
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Our view
Next's trading in the third quarter was closely tied to weather conditions, with a warm September stifling sales somewhat. But a cooler-than-average August caused shoppers to splash out and layer up in Next's latest offerings - a trend that spilt over into October. The net effect was positive and resulted in yet another full-year profit upgrade.
The Online division continues to be the standout performer, helping to drive full-price sales growth above market expectations. Successfully keeping full-priced sales front and centre to avoid discounts is one of the main reasons Next boasts some of the best margins in the sector.
The online division accounted for more than 50% of group sales at the half-year mark, and we're pleased to see that increased warehouse space and operational tweaks are helping to iron out some of the problems of the past. There's still some work to be done to improve reliability and efficiencies further, but it was pleasing to see the proportion of items delivered late in June was down 45% year-on-year.
The online focus has helped Next grow its brand in overseas markets too. Sales abroad were up 18% in the first half, with net margin doubling to 14%. It's still a relatively small slice of the pie at the moment, but overseas markets offer huge growth potential and it's an exciting prospect if Next can execute well here. Although, nothing is guaranteed.
Next still has a strong high street presence though. Its shops typically have shorter, more favourable leases than peers, and are more focussed on out-of-town retail outlets that have fared better. That gives extra flexibility and should allow it to make the best of tougher conditions if they arrive.
But it's important not to get too carried away. Next expects high levels of inflation will continue to weigh heavy on consumers' wallets over the final quarter. And despite multiple guidance upgrades, full-year pre-tax profits are only expected to be marginally up on last year, highlighting just how tough the retail sector can be in times of economic uncertainty.
The group plans to pay an interim dividend of 66p per share later this financial year, while also completing a further £52m of share buybacks. And despite the FatFace acquisition, analyst forecasts suggest these are currently covered by cashflows, but no shareholder returns are guaranteed.
Next's always been a top dog in the retail industry, but it's a tough sector to be in during times of economic uncertainty. It's weathering the storm admirably and looks well-placed to prosper when the outlook brightens. That's reflected in a valuation climbing back towards its long-term average but further ups and downs could be in store along the way.
Next key facts
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