Late surge in online demand saves Next's Christmas

By James Davey

LONDON (Reuters) - A late surge in online demand helped British clothing retailer Next to increase sales in the Christmas period, confounding fears of tough festive trading and lifting shares across the battered sector.

The first major stock market-listed retailer to update on Christmas said strong sales in the three weeks before Christmas along with a good half-term holiday week in late October made up for disappointing sales in an unusually mild November.

Increased use of online shopping by consumers right up until Christmas was an important factor in the positive outcome, Next Chief Executive Simon Wolfson said on Thursday.

Wolfson added that the UK consumer "is not in a bad place," noting real earnings growth and strong employment figures despite uncertainties over Britain's impending departure from the European Union.

The update provided a much-needed boost to sentiment after a profit warning from online fashion group ASOS last month hammered confidence while cautious shoppers on the high street forced many retailers to cut prices to shift stock.

Shares in Next rose 6.2 percent by 1025 GMT, with Marks & Spencer, Primark-owner AB Foods and Debenhams all also gaining as the better than expected update set a positive tone, and a high bar, for rivals. All are scheduled to update the market this month.

Wolfson said shoppers were now more confident that late online orders would arrive in time for Christmas.

"What we’ve traditionally seen is that online sales begin to fall off around four weeks before Christmas as people become less sure of delivery services," he told Reuters.

"Consumers used online in a way that they would shop the rest of the year."

BREXIT CLOUDS PICTURE

Next's update comes a day after John Lewis [JLPLC.UL] said that sales in its department stores rose 4.5 percent in the week ending Dec. 29.

"We think John Lewis and Next will have outperformed, however, thanks to their strong online presence, so we still wouldn't rule out some bad news from Debenhams or M&S," said independent retail analyst Nick Bubb.

Next said that for the year ahead (2019-20) it was assuming a similar economic environment to the second half of its current financial year that runs until the end of January. But it cautioned that forecasts for 2019-20 come with a high degree of uncertainty because of Brexit.

Next said total full-price sales including interest income rose 1.5 percent in the period from Oct. 28 to Dec. 29, the bulk of its fourth quarter. Third-quarter growth was 2 percent.

Sales at its stores fell 9.2 percent but sales from its Directory catalogue and online business were up 15.2 percent.

Analysts said Next had again managed to navigate the difficult terrain. Peel Hunt analysts said Next's update was "reassuring after some of the Armageddon commentary."

HIGH STREET'S HARD TIMES

The trading environment in Britain was brutal in the run-up to Christmas with many retailers forced to cut prices.

Industry data showed the largest November drop in shopper numbers for a decade, while the warning from ASOS caused a share price rout, suggesting the high street malaise had infected online players too.

British retailers are facing a perfect storm of rising costs, uncertainty in the economy around Brexit and the structural shift online.

Next, which trades from more than 500 stores in Britain and Ireland, about 200 stores in 40 countries overseas and its "Directory" business, has a longstanding policy of not starting its sale before Boxing Day, Dec. 26.

For the full 2018-19 year Next is forecasting full-price sales growth of 3.2 percent and pretax profit of 723 million pounds versus 726.1 million pounds made in 2017-18. It was previously forecasting sales growth of 3 percent and profit of 727 million pounds.

For 2019-20 it is forecasting sales growth of 1.7 percent and profit of 715 million pounds.

Though that would be a fourth straight year of profit decline Next's earnings per share were forecast to rise again, thanks to share buybacks.

(Reporting by James Davey; Editing by Kate Holton/Keith Weir)