UK: Mild weather hits profits at Next

Britain’s Indian summer will knock £25 million off profits at Next after the sustained period of mild weather saw its sales performance melt away.

The group warned that turbulent trading conditions meant it could even see sales fall over the key final quarter, which includes the Christmas period.

Sales grew by 5.4% in the third quarter to October 25, compared to original expectations of 10%, following the mild autumn which is set to see temperatures of up to 20C (68F) this week.

Next said it now expected full-year pre-tax profits to rise 11% to £770 million, down from £795 million previously expected.

Shares fell 3% while the weather warning also hit the stock performance of rivals Marks & Spencer - which reports half-year results next week - and Primark owner Associated British Foods.

Next said last month that it would have to lower its profits guidance for the year if the Indian summer continued throughout October.

It said today: “In the event October remained unseasonably warm and sales for the third quarter were up 5.4%, which compares to our original expectation of +10%.”

Quarterly sales in stores grew by just 2.4% but the overall figure was boosted by the performance of online and catalogue sales through Next Directory, up 9.6%.

Better weather has hit demand for jumpers and coats.

“Whilst a cool August meant that the season started well, this was more than offset by much weaker sales in September and October,” Next said.

It revealed that sales fell year-on-year for three weeks in September and were almost flat on a couple of weeks in October.

The group added: “Given the volatility of current trading and the very strong fourth quarter performance last year, we have moderated our expectations for the fourth quarter this year.”

It now expects to record fourth quarter sales somewhere between a fall of 2% and a rise of 4% compared to the prior year. The central forecast of 1% growth is down from a previous expectation of 4%.

Full-year total sales are now expected to be between 6% and 8% higher than last year, with Next having previously pencilled in a rise of 7-10%.

The group said that its full-year debt was forecast to be in line with next year so it did not intend to pay any further special dividends in the current financial year, having already returned more than £700 million to shareholders.

Next, which overtook Marks & Spencer with a £695 million annual profits haul earlier this year, had been experiencing its strongest sales growth for many years prior to the slower performance in September.

Cantor Fitzgerald analyst Freddie George said: “Our view is that the current slippage is completely due to the mild weather, the underlying trend for consumption remains positive and the comparatives for next year ease.

“It does appear, however, that we are seeing more extreme weather patterns.”

Retail analyst Nick Bubb said the third quarter figures were not a big surprise but it was a “slight disappointment” that Next was not confident about making the shortfall up in the fourth quarter.