U.K. fashion-to-home chain Next plc is looking at the spoils of the Arcadia collapse at a time when the apparel retailer’s performance has been robust in the lead-up to Christmas—despite lockdowns closing non-essential retail in different regions of Britain.
Next CEO Simon Wolfson told Reuters on Tuesday that the company was part of a consortium bidding for some of Arcadia’s well-known store brands. Wolfson did not mention which ones but the pickings include Topshop, Topman, Burton, Dorothy Perkins, Evans and Miss Selfridge.
The same day, Next released its full-price sales for the nine weeks to December 26. They fell by 1.1% versus the same period last year, sending the company’s share price soaring by 8% to a five-year high. Shoppers stayed away from perceived ‘busy’ shopping streets due to Covid-19 fears, but stores located in out-of-town retail parks benefited, doing around 15% better than those in city centers and shopping malls.
The flat (-1.1%) performance in the run-up to Christmas was a lot better than the October guidance of an 8% slide, which came as a relief to the market. Next said in a trading statement: “Online business compensated for almost all (that was) lost in retail stores.”
The company has forecast full-year profit before tax will be £342 million ($465 million), and that year-end net debt will be substantially slashed by £487 million to £625 million ($660 million to $850 million). Looking ahead to FY2021/22, Next’s guidance—taking into account closed stores in February and March due to the U.K’s third national lockdown—is for profit before tax of £670 million ($912 million).
An upside-down swan
At savings and investment group Hargreaves Lansdown, Steve Clayton, a fund manager with positions in the fashion chain, commented: “Next looks like an upside-down swan right now. Normally swans glide serenely along the surface, feet paddling furiously beneath. The pandemic has flipped the swan upside-down and it is those feet we are looking at.
“Their frantic activity disguises how effectively Next has managed the pandemic so far. Business in stores has been pretty awful, with lockdowns impacting their ability to trade—a problem Next sees lasting through March. But online has stepped up, growing by 38% in the nine weeks to Boxing Day.”
The pandemic has turned Next into a predominantly online retailer in 2020 and as such it is well prepared for further store disruption, unlike many of its retail rivals. “We like Next both for its online strength, but also its focus on cash flow, which is set to see debts fall by over £400 million in the current year. We see the retailer as well positioned to take advantage,” said Clayton.
Richard Lim, CEO at independent research consultancy Retail Economics, added: “Next leveraged its slick online channel during this vital trading period. The retailer is benefiting from years of investment in online and has proved once again its versatility in dealing with the pandemic. These results are likely to set the tone for a polarized view of the retail sector which separates those having impressive online capabilities from those that do not.”
As for the to-the-wire Brexit agreement, Next said it had not experienced any disruption—with new systems implemented and now operational. The company added: “We do not anticipate that Brexit will have a material impact on our ability to import and export stock in the year ahead. Following the announcement of the free trade deal between the U.K. and EU, we do not anticipate any increase in customs duty costs.”