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29 April 2020

Next Trading Update

Saul Fulda, Investment Analyst

Despite Next’s position as an early mover into the online fashion arena, the company has not been immune to the ongoing Covid-19 crisis, which has accelerated the decline of the retail sector and of the British high street.  
Next has seen sales fall faster and steeper than previously anticipated, with retail sales down 52% year-to-date, and is now expecting this regression to spread into the second half of the year.

Next’s sound online presence has come to its rescue over the past 18 months. Yet, the fact that their website was shut for three weeks over March and April, and only re-opened with limited capacity, has hit performance hard - online sales have dropped by 32% compared to the same period in 2019. Even today, only 70% of Next’s products are available to consumers.

Notwistanding its poor performance, the company has made sensible decisions. All directors have waived their annual bonus and cut salaries by 20%, while the group has suspended its share-buybacks and dividends until January 2021 and deferred capital expenditure projects worth around £45m. 

The poor headlines should not worry investors. Next remains a robust business and is being sagacious in taking precautionary measures to deal with the ongoing crisis. That even in the worst-case stress test scenario, where sales are to drop by 40%, the company should deliver positive EBITDA (earnings before interest, taxes, depreciation and amortization) tells its own tale. 


Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
 
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