UK's Next profit edges lower on falling store sales

British clothing chain Next forecast a fourth straight fall in annual profit on Thursday as it grapples with the sector's structural shift from physical stores to online.
The group, which trades from more than 500 stores in Britain and Ireland, about 200 stores in 40 other countries and its Directory online business, reported a 0.4 percent fall in pretax profit in its 2018/19 financial year and forecast a further 1.1 percent decline for the following year. However, full-year earnings per share rose 4.5 percent and are forecast to rise by 3.6 percent in the current year as Next buys back shares with surplus cash.
Although retail sales fell 7.3 percent in the year to Jan. 31, compared with a 14.8 percent rise in online sales, the company continues to expand its store network, with plans for a net 60,000 square feet of additional space in 2019/20. The company says its stores will remain profitable even if they become less productive.
Full-year pretax profit of 722.9 million pounds ($955.7 million) was in line with company guidance but represented a third straight annual decline. For the current year Next forecast full-price sales to increase 1.7 percent, with an 8.5 percent decline in retail sales more than offset by an 11 percent rise in online sales. It forecast profit of 715 million pounds.
Shares in Next, up 9 percent year-on-year before Thursday's update, were down 1.5 percent at 1114 GMT. "Next continues to manage a difficult channel shift dynamic as well as could be expected," Peel Hunt analysts said.
Next Chief Executive Simon Wolfson said the impact of the structural shift should become less of an issue as store operations shrink relative to the size of the online business. The group has carried out a 15-year stress test on the transition to an online-dominated business. The test assumes an extreme scenario of like-for-like store sales declining at 10 percent a year for the next 15 years.
The conclusion of what he described as a very extreme test would be that Next would still have more than 300 shops open, Wolfson added.