TIDMNXT
RNS Number : 5835Y
Next PLC
04 January 2024
Trading Statement - 4 January 2024
SUMMARY
Full price sales during November and December have been better
than we anticipated.
-- In the nine weeks to 30 December, full price sales (1) were
up +5.7% versus last year. This was GBP38m better than our previous
guidance of +2.0% for the period.
-- We have increased our full year profit before tax guidance by
GBP20m to GBP905m, up +4.0% versus last year. Of the GBP20m
increase, GBP17m came from the sales beat to date and GBP3m
comes from an upgraded forecast for full price sales in January.
(1.) Full price sales are VAT exclusive sales of items sold at
full price in Retail and Online plus NEXT Finance interest income.
They exclude items sold in our Sale events, Clearance operations
and through Total Platform. They are not statutory sales.
Initial guidance for the year ahead:
-- Guidance for full price sales on continuous business to be up
+2.5%. After accounting for the effect of recent acquisitions,
we expect Group sales, including subsidiary companies (2) ,
to be up by +6.0% see page 4.
-- Guidance for Group profit (3) before tax for the year ahead
to be up +5.0%.
(2.) In this Trading Statement we use the term subsidiaries to
include all equity investments including those over which we do not
have full control, such as JoJo Maman Bébé.
(3.) Group profit before tax is not statutory profit. Statutory
profit includes (1) an exceptional accounting (non-cash) gain on
the Reiss transaction and (2) the minority interests in companies
which are fully consolidated in NEXT's accounts (i.e. FatFace,
Joules and Reiss). By excluding the minority interests that we do
not own, Group profit given here is the profit attributable to NEXT
plc shareholders.
This statement is divided into two sections: Part One focuses on
the current year, and Part Two gives sales and profit guidance for
the year ahead.
PART 1: THE CURRENT YEAR
Full Price Sales to 30 December 2023
The table below sets out the full price sales performance for
the nine weeks to 30 December and for the second half to 30
December. The performance in both Retail and Online was ahead of
our expectations. Online performed particularly well, which we
believe was as a result of service improvements versus last
year.
Full price sales (VAT exclusive) Q4 Second half
versus last year to 30 December to 30 December
================================= =============== ===============
Online +9.1% +7.7%
Retail +0.6% +0.0%
=============== ===============
Total Product full price sales +5.6% +4.7%
Finance interest income +6.7% +7.0%
=============== ===============
Total full price sales including
interest income +5.7% +4.8%
The chart below sets out Q4's weekly performance versus last
year. The last three weeks' sales performance was distorted as a
result of Christmas Day this year falling after the weekend; so the
performance of the last three weeks is best understood by looking
at the growth over these weeks combined, which was +4.6%.
End-of-Season Sale
Stock has been well controlled. We went into the end-of-season
Sale with -12% less surplus stock than last year. We expect
clearance rates over the life of the Sale to be broadly in line
with last year.
Sales and Profit Guidance for the Current Year
Our revised guidance for the current year is set out below,
along with our previous guidance given in November. Of the GBP20m
increase in profit, GBP17m came from the GBP38m sales beat to date,
and GBP3m comes from an upgraded forecast for full price sales in
January.
Please note this guidance excludes the exceptional accounting
(non-cash) gain of circa GBP110m following our acquisition of the
additional equity stake in Reiss.
Guidance for the full Full year Versus November Versus
year 2023/24 guidance 2022/23 guidance 2022/23
============================ ========= ======== ========= ========
Full year full price sales GBP4.78bn +4.0% GBP4.74bn +3.1%
Group profit before tax GBP905m +4.0% GBP885m +1.7%
Pre-tax Earnings Per Share 746.3p +6.4% 730.2p +4.1%
Post-tax Earnings Per Share 569.9p - 0.6% 557.7p - 2.7%
========= ======== ========= ========
Cash generation and net debt
Cash generation remains strong in the year and we anticipate
that we will generate circa GBP100m more surplus cash than the
previous guidance given in September. This movement is explained in
the table below.
Cash flow walk forward: September to January GBPm
guidance (e)
================================================= === ====
Increase in profit before tax (GBP905m versus
GBP875m guidance given in Sept) 30
Corporation Tax on additional profit (8)
===
Net profit impact 22
Cash into the Employee Share Option Trust (ESOT) 25
Cash in acquired businesses 25
Higher customer payments in the NEXT Finance
business 18
Other 10
=== ====
Increase in surplus cash 100
The cash expected to flow into our ESOT has increased by GBP25m.
This is as a result of more colleagues exercising their share
options and purchasing shares from the ESOT, following the recent
increase in our share price.
We now expect our net debt (excluding lease liabilities) to
close the year at around GBP700m, which compares to GBP797m in the
prior year.
PART 2: THE YEAR AHEAD
Note on the treatment of brand amortisation
Going forward we will be excluding the amortisation of the
brands we purchase from our headline profits. The rationale for
this convention and its effects are set out in Appendix 1 to this
document on page 7. For the purposes of comparisons with the
current year, we will also exclude amortisation of acquired brands
(4) from this year's expected number. The effect of this change is
to add GBP10m to the current year's headline profit, taking it to
GBP915m, and GBP19m to next year's headline profit.
(4.) Includes the brand and any other related intangible assets
acquired in the business.
GUIDANCE FOR 2024/25
A summary of guidance for 2024/25 is set out in the table below.
The sections which follow explain our guidance for sales, profit
and cash flow in more detail.
Full year
Guidance for the full year 2024/25 % Versus 2023/24 GBP (e)
======================================= ================
Full price sales +2.5%
Total Group sales including subsidiary
companies +6.0%
Group profit before tax (excluding
GBP19m of amortisation) +5.0% GBP960m
Earnings Per Share (excluding GBP19m
of amortisation) +4.6% 603.4p
Net debt (excluding lease liabilities) - 10.7% GBP625m
================
Full Price Sales
We have assumed that full price sales for the core NEXT business
(Retail, Online, LABEL and NEXT Finance interest income) will be up
+2.5% against the current year. This increase excludes any increase
in Group turnover relating to the acquisition or growth in
subsidiary companies and equity investments.
On the face of it, the consumer environment looks more benign
than it has for a number of years, albeit there are some
significant uncertainties. The table below summarises the positive
factors and risks we have balanced in our sales guidance for the
year ahead:
Positive Factors Risk Factors
Wages rising faster than prices Weakening employment market?
UK wages look set to rise in Although rising wages are
line with, if not more than, good for sales, it seems likely
Consumer Inflation (CPI). For that they will result in reduced
many consumers this will ease employment opportunities in
the pressure they have felt the wider economy. Vacancy
on their cost of living for rates in the UK have already
the last eighteen months. fallen over the last six months
Zero inflation in our selling and, if that trend continues,
prices it is likely to result in increased
Cost price inflation in our unemployment.
own products is diminishing,
mainly as a result of decreasing Mortgage rates?
factory gate prices. We believe Fixed rate mortgage deals will
that this will allow us to continue to expire, and require
maintain zero inflation in refinancing at higher rates.
selling prices (5) , along
with a small increase in bought Supply chain risks?
in gross margins (6) . This Difficulties with access to
will be the first time in three the Suez Canal, if they continue,
years that input prices have are likely to cause some delays
been stable. to stock deliveries in the
early part of the year.
(5.) Price increases are solely assessed on the basis of items
that we also sold last year (i.e. like-for-like goods). There is no
comparative price for new designs. These like-for-like items
account for around 30% of our sales.
(6.) The difference between the landed cost price of our goods
and their original (full price) selling price (VAT ex.)
Total Group Sales
Total Group sales, including subsidiary companies and equity
investments, are expected to grow by +6.0%. This turnover figure is
calculated using our share of our subsidiaries' turnover. For
example, we own 74% of Joules so we include 74% of their sales (7)
in our top line. For a more detailed explanation of how we will
report headline Total Group sales going forward please see Appendix
2 on page 8.
(7.) This figure excludes their LABEL sales (100% of which are
included in our Online sales) and Total Platform commission.
Group Profit Guidance for the Year Ahead
Profit Walk Forward from 2023/24(e) to 2024/25(e)
The table below walks forward our guidance for profit before tax
from the expected profit for the year ending January 2024, to our
guidance profit for the year ending January 2025.
GBPm
=================================================== ==== =====
Profit before tax 2023/24 (e) 905
Add back brand amortisation in 2023/24 +10
=====
Profit before tax (excluding brand amortisation)
2023/24 (e) 915
Profit from full price sales, Total Platform
and subsidiaries
Profit from +2.5% (GBP120m) increase in full
price sales +38
Additional profit from Total Platform services +6
Additional profit from Total Platform equity
(including new acquisitions) +28
====
Total profit from full price sales, Total Platform
and subsidiaries +72
Cost increases
Wage inflation (including third-party wages,
e.g. couriers) - 60
Warehouse and distribution - 22
Technology - 17
Markdown (higher surplus and lower clearance
rates) - 10
====
Total cost increases - 109
Cost savings
Staff incentives +24
Warehouse and distribution (including operational
efficiencies) +18
Bought-in gross margin +17
Electricity rate +12
Joules: prior year one-off integration costs
not repeating +9
Other cost savings +2
====
Total cost savings +82
==== =====
Profit before tax (excluding amortisation) 2024/25
(e) 960
PBT versus 2023/24 +5.0%
Cost Increases and Cost Savings
The largest cost increase will be wage inflation, which we
expect to be around GBP60m. Within this, around GBP25m is the
difference between the expected rate of general UK wage inflation,
and the rise in the National Living Wage. To mitigate some of this
cost increase, we plan to recover c.GBP17m by increasing our
bought-in gross margin (8) by +0.4%. Despite this increase in
margin, we do not anticipate that selling prices will increase in
the year ahead. In fact, without the anticipated margin gain,
prices would have fallen marginally as a result of continued
reductions in factory gate prices.
(8.) The difference between the landed cost price of our goods
and their original (full price) selling price (VAT ex.).
Cash Generation, Shareholder Distributions and Net Debt
We expect to generate around GBP600m of operating cash flow
after deducting interest, tax and capital expenditure, but before
investments and distributions to shareholders.
In our guidance we have assumed that, after paying ordinary
dividends of circa GBP250m, we will return GBP275m of surplus cash
(9) to shareholders by way of share buybacks in the year ahead.
This figure will be lower if we make further investments. We
estimate that these buybacks, along with buybacks in the current
year, will boost pre-tax Earnings Per Share by +1.5% next year.
After paying ordinary dividends and completing our planned share
buybacks, we intend to retain the remaining GBP75m of surplus cash,
further reducing our net debt.
(9.) Surplus cash refers to cash flow after ordinary dividends,
interest, tax, capex and funding any movement in our customer
receivables.
Cash flow and shareholder distributions
GBPm 2024/25 (e)
================================================= ===========
Cash generation before shareholder distributions 600
Ordinary dividends (250)
Share buyback or investments (275)
===========
Remaining surplus cash 75
Anticipating the maturity of our August 2025 Bond
The GBP100m reduction in net debt that we expect in the current
year, along with the anticipated GBP75m reduction in the year
ahead, result in a total reduction in net debt of GBP175m. This
means that if we retain a further GBP75m the following year (i.e.
year ending January 2026), we will not have to refinance the
GBP250m bond due in August 2025. This gives us the flexibility to
avoid the bond market if long term corporate interest rates remain
at their current (high) level.
FULL YEAR RESULTS ANNOUNCEMENT
We are scheduled to announce our results for the full year
ending 27 January 2024 on Thursday 21 March 2024.
APPIX 1: NOTE FOR ANALYSTS ON THE ONGOING TREATMENT OF BRAND
AMORTISATION
As NEXT acquires new businesses, the accounting effect of
amortising the value of acquired brands (10) will increasingly
understate the underlying profitability of the Group. Amortisation
is a non-cash accounting adjustment similar to depreciation;
accounting standards require that the value of brands is amortised
over their life. In the case of FatFace and Reiss we are amortising
the brand over 15 and 25 years respectively. This amortisation
assumes that the value of these brands will drop to zero over the
amortisation period; in reality it is more likely that they will
increase in value than fall to zero.
(10.) Acquired brands is used to describe the brand and any
other related intangible assets acquired in the business.
By way of example: If NEXT plc was acquired, at its current
market value, by a shell company that issued new shares in exchange
for the company's current shares then, under statutory reporting,
the acquiring company would then add the brand to the balance sheet
and amortise it over the 'life' of the asset. A conservative
accounting approach would result in a life of, say, 25 years, which
would result in an annual amortisation charge of around GBP370m.
So, despite having exactly the same cash flow, assets and debt as
the existing company, the new company's reported profit would be
around 40% lower than prior to the transaction - clearly not a true
representation of the company's value.
So from 2024/25 we will adopt the accounting convention used by
many acquisitive Groups, and report our 'headline profits'
excluding brand amortisation costs. In addition, to ensure that
comparisons to the current year are consistent, we will also
re-state the current year's headline profits to exclude brand
amortisation.
EBITDA?
We will, of course, be including the depreciation and
amortisation of other assets with a limited life. For clarity, we
will not be joining the companies that quote 'EBITDA' as a key
measure of success. Capital spent on assets or technology that
decline in value, and ultimately require replacement, must be
accounted for in any reasonable assessment of financial
performance.
Re-stated brand profits last year, this year and guidance for
next year
The table below sets out the impact of removing brand
amortisation from our actual headline profits last year, our
expected profits in the current year and the year ahead.
Current
Last year year Next year
2023/24 2024/25
2022/23 (e) (e)
============================================ ========= ========= =========
Group profit before tax (including
brand amortisation) GBP870.4m GBP905.0m GBP941.2m
Add back brand amortisation +GBP4.3m +GBP9.7m +GBP18.8m
========= ========= =========
Group profit before tax (excluding
brand amortisation) GBP874.7m GBP914.7m GBP960.0m
Year on year growth +4.6% +5.0%
Pre-tax EPS (excluding brand amortisation) 704.8p 754.3p 804.5p
Year on year growth +7.0% +6.7%
Post-tax EPS (excluding brand amortisation) 576.8p 576.6p 603.4p
Year on year growth - 0.0% +4.6%
APPIX 2: REPORTING OF HEADLINE GROUP SALES AND PROFITS GOING
FORWARD
Reporting the headline PROFITS of subsidiaries in which we have
a part share
As NEXT begins to acquire new businesses the question arises as
to how we report the sales and profits from companies in which we
own a part share. Accounting standards require our statutory
accounts to consolidate the sales and profits of companies in which
we have a controlling interest, but in the case of part ownership
that means that we would start to include in our headline numbers,
profit that our shareholders do not "own". The answer, we believe,
is to report our share of our subsidiaries' profits; so if we own
50% of the business we will include 50% of its profits in our
headline number.
In summary: We will include our share of subsidiary profits in
our headline profit number for the Group.
Reporting the headline SALES of subsidiaries in which we have a
part share
Until now we have not included the sales of subsidiary companies
in our headline sales number. So far that has not been a problem,
as they have not been material. As we acquire more businesses the
risk is that we overstate the headline net margins of the Group by
including our share of their profits but exclude all of their
sales.
To address this problem, going forward, we will adopt the same
convention for sales as we have done for profits. So if we own 50%
of a company we will report 50% of its profits and 50% of its sales
in our headline numbers (subject to the qualification below). By
maintaining the proportion of sales and profits in line with our
ownership we give a more accurate picture of our profit and net
margins.
In summary: We will include our share of subsidiary sales in our
headline sales number for the Group.
ISSUE: Avoiding the double counting of LABEL sales
Historically we have always included LABEL sales within our
headline sales number, whether goods are sold on a wholesale or
commission basis (11) and we will continue with this convention
going forward. However, a subsidiary company's sales on LABEL will
also be reported within their sales numbers. So if we include our
share of their sales in our headline sales, including their LABEL
sales, we will double count our share of their LABEL sales.
(11.) As previously explained, the gross transaction value of
LABEL items sold on commission are not statutory sales but are
included in our headline numbers.
To avoid this problem, we will exclude subsidiaries' LABEL sales
from their sales before accounting for our share of their sales. So
if we own 50% of a subsidiary that turns over GBP100m, of which
GBP20m are LABEL sales, then we will add 50% of GBP80m (i.e.
GBP100m - GBP20m) to our headline sales number.
On the same logic, we will also deduct the value of Total
Platform commission from their sales.
In summary: We will deduct subsidiary sales on LABEL before
accounting for our share of their sales.
Statutory reporting
Our statutory results will, of course, continue to conform to
statutory reporting requirements. A reconciliation between the NEXT
headline financial measures and their statutory equivalents will be
provided in our Annual Report and Accounts. This will ensure
readers can clearly see the impact of differences in approach.
Forward Looking Statements
Certain statements in this Trading Update are forward looking
statements. These statements may contain the words "anticipate",
"believe", "intend", "aim", "expects", "will", or words of similar
meaning. By their nature, forward looking statements involve risks,
uncertainties or assumptions that could cause actual results or
events to differ materially from those expressed or implied by
those statements. As such, undue reliance should not be placed on
forward looking statements. Except as required by applicable law or
regulation, NEXT plc disclaims any obligation or undertaking to
update these statements to reflect events occurring after the date
these statements were published.
Date: Embargoed until 07:00 hrs, Thursday 4 January 2024
Contacts: Amanda James, Group Finance Director
(analyst calls) Tel: 0333 777 8888
NEXT PLC
Alistair Mackinnon-Musson Email: next@rowbellpr.com
Rowbell PR Tel: 020 7717 5239
Photographs: https://www.nextplc.co.uk/media/image-gallery/campaign-images
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