Next is cancelling its dividend and share buyback programme to save £480m as it warned sales would fall “faster and steeper” than previously feared during the coronavirus crisis.
The fashion and homewares retailer warned it could suffer losses of £150m – from a profit of almost £600m last year – as full-price sales collapse by up to 40%. The potential scenario outlined by Next on Wednesday is a significant worsening from the worst case of a 25% drop predicted by the group just last month.
It said expectations had changed because of a bigger-than-expected 38% slump in sales in the three months to 26 April after having to close its stores and website for a period. It also believes it likely trading will continue to decline through the autumn and winter season.
Simon Wolfson, the chief executive, said it was not clear when Next would be able to reopen stores. “There is no way that we or the government can know. No one knows what next weeks infection rates will be and theres no comparable event to what we are experiencing at the moment that allows people to use the past to inform a prediction about the future.
“Rather than bully the government to give information it cant give we have to prepare for all eventualities.”
Next confirmed it would not pay a dividend due in August and added it was also highly unlikely to pay one in January as much had changed since it last updated investors just over a month ago amid “unprecedented uncertainty” caused by the coronavirus outbreak.
“We anticipate that it will take some time for customers to return to their normal shopping habits and that sales will be very subdued when trade commences,” the group said.
“We believe that the effects of the coronavirus will be felt for longer than we first anticipated. The economic consequences and continued social distancing will mean that both retail sales and online sales will be disrupted even after full lockdown measures have been lifted.”
The retailer stressed its finances were secure as “historic maintenance of healthy margins and high returns on capital have built a strong base from which to weather the storm”.
To help it cope with the crisis, Next is raising £155m in cash with the sale and leaseback of three warehouses and its headquarters in Leicester. It has saved £290m by cancelling stock orders from suppliers and made £120m in other cost savings, including marketing and distribution.
The company has also won approval for a government-backed emergency loan and furloughed more than 80% of staff under the governments job retention scheme.
Next said it was working on getting back to business, and has 70% of its ranges available online, after putting in place physical distancing measures at its warehouse. Overseas online operations are closed in all but two countries, Germany and Russia, but the company expects to begin reopening by the end of this week.
The group is working on plans to reopen stores with physical distancing measures in place, once it is allowed to do so. Wolfson said Next had begun trialling measures such as till screens and one-way systems in one store and had ordered kit for other outlets.
Next said large, out-of-town stores would be the first to open as they had the space to organise queuing systems similar to those used by supermarkets.
The update from Next came as Dixons Carphone said it was also cancelling its dividend, although the electrical products retailer said its sales had fallen by just 3% in the five weeks to 25 April.
A surge in online demand allowed the retailer to recover about two-thirds of sales lost in its closed UK stores. Online sales jumped by 166% in the UK and Ireland and by 16% overseas, as shoppers sought out computers to cope with working from home as well as breadmakers, gaming equipment and TVs for entertainment during the lockdown.
READ MORE FROM SOURCE: https://www.theguardian.com/business/2020/apr/29/next-warns-sales-will-fall-faster-and-steeper-than-expected-during-crisis