Shares in Next briefly jumped 10 per cent this morning after the high street giant reported much better than expected lockdown sales.
The FTSE 100 business said a 28 per cent drop in sales in April, May and June – compared to the same months in 2019 – was even better than the best-case scenario it drew up in April.
It said it was more optimistic now that it was in the spring, but warned the impact of rising unemployment, changes in consumer behaviour and a potential second wave lockdown, remained unknown.
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The £4.2 billion turnover group was forced to close all its stores when the lockdown was imposed.
Back in March it estimated losing between £400 million and £1 billion in sales this year, downgrading that to between £1.2 billion and £1.6 billion just one month later.
Following on from the more positive last three months, its new best-case scenario for 2020 would see £795 million in sales lost due to the pandemic (18 per cent down on 2019), while the worst-case could still see revenues down £1.32 billion on last year (down a third).
Its “central scenario” would see sales down a quarter on last year’s figures, down just over £1 billion.
Those central losses would be helped by savings of around £585 million in areas such as less money being spent on stock, reduced wages (at one point 88 per cent of staff were furloughed, now down to 10 per cent), as well as lower operational costs, lower business rates and corporation taxes.
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Customers were also returning far fewer items, it said.
The business said during the lockdown it had saved around £38 million on marketing, catalogues and photography, and another £27 million on store repairs and maintenance, electricity, cleaning, credit card commission and even bags and hangers.
However it has put £10 million into making sure its stores and warehouses are Covid-secure, and said it does not intend to apply for the £1,000 furlough bonus scheme for every employee it brings back and keeps in work between November and January.
The business, which employs around 30,000 people, said online sales rose 9 per cent over the three months, offsetting a drop in shop sales even after they reopened.
It now expects full year pre-tax profits of £195 million, compared to £728.5 million for the previous year to January 2020.
Shares were selling at £56.16 at 10am today, up 7 per cent on today's opening price.
Pre-lockdown they were £70, dipping to £34 in April.
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In a trading update Next said: “As the pandemic retreats, and we learn to operate in a socially distanced world, we are beginning to better understand both consumer demand and how the company’s finances will be affected this year.
“Sales warehouse capacity has come back faster than we had planned, and store sales have been more robust than anticipated.
“As a result, our second quarter sales have been significantly ahead of our internal plan.
“Online sales in the second quarter were up 9 per cent and like-for-like sales in retail stores, since they re-opened, were down 32 per cent.
“We have modelled three new scenarios based on full price sales for the full year being down – minus-18 per cent, minus-26 per cent and minus-33p per cent.
“The central minus-26 per cent scenario is in line with our internal forecast and assumes that sales in the second half are down 19 per cent.
“The company’s cash resources have been enhanced through a combination of asset sales and the suspension of dividends and share buybacks.
“These measures, along with the cash we anticipate generating from operations, mean that year end net debt is likely to fall significantly.
“Based on our central scenario, year-end net debt will fall by around £460 million to £650 million, which is comfortably within the company’s cash resources of £1.6 billion….”
Next chief executive Simon Wolfson and senior management acted swiftly at the start of the pandemic to weigh up the potential impact and react to it.
The update said: “There is still much that remains uncertain and our central scenario cannot be accorded the same degree of confidence that our guidance would normally receive at this time of year.
“The duration of social distancing rules, post-lockdown consumer behaviour, earnings, unemployment, and, most importantly, whether there will be a second wave lockdown, all remain unknowable.
“Nonetheless, our experience over the last 13 weeks has given us much greater clarity on our online capabilities during lockdown and the state of consumer demand, and we are now more optimistic about the outlook for the full year than we were at the height of the pandemic.”
Julie Palmer, a partner at restructuring expert Begbies Traynor, said: "Next is a pioneer for the retail sector and has bucked the high street trend and seen sales start to climb against the grain of retail decline.
“But the fall-out from the coronavirus is the company's latest test and chief executive Simon Wolfson will be wary that the challenges are only just beginning.
“The retailer has invested heavily in its digital offering, which has kept the business on solid ground, countering the drop in physical store sales.
"However, with low footfalls, the company will need to remain resilient and innovate to successfully navigate through the current uncertainty and attract consumers.
"It may need to follow the trend of supermarkets and shift high street staff to delivery and warehouse teams in order to cater for the greater demand and make its offering work during this coronavirus crisis."