Next enjoys belated Christmas present as sales surge

Retailer posts 1.5% increase in sales in the lead-up to Christmas, defying expectations for a 0.3% drop.

Shares in Next surged over 8% early on Wednesday (3 January), after the fashion retailer saw sales unexpectedly rise over the Christmas period.

The FTSE 100-listed company reported a 1.5% increase in sales in the 54 days leading up to Christmas Eve, defying its own forecast of a 0.3% drop and analysts' expectations of a 0.5% decline.

While shop sales fell 6.1% in the fourth quarter, online sales grew 13.1% in the same period.

Next, which in November had warned of "extremely volatile" trading conditions in the lead-up to the festive period, added the boost in sales prompted it to lift its profit forecast.

The retailer now expects full-year profits to increase by £8m ($10.9m) to £725m, which would however be considerably lower than the £790m it recorded in the 12 months to January 2017.

Despite the positive performance, which it attributed to "much colder weather in the run-up to Christmas", the company warned some of the challenges it faced in 2017 are expected to linger into 2018.

"However, we believe that some of these headwinds will ease as we move through the year," it said. "We already know that cost price inflation will reduce to 2% in the first half and believe it will disappear in the second half."

George Salmon, equity analyst at Hargreaves Lansdown, explained that while colder weather may have boosted sales in the run-up to Christmas, the real positive was the more optimistic outlook from Next's chief executive Simon Wolfson.

"The long-serving CEO has an excellent reputation in the industry, so for him to say that one or two of the headwinds facing the UK's retailers should ease in the year ahead represents a significant fillip to the sector," he said.

"He's putting his money where his mouth is too. The decision to use the expected £300m of surplus cash generated next year to fund share buybacks rather than special dividends implies management believe the shares represent good value at the moment. With the Wolfson name prominent on the shareholder register, the CEO has got more than a passing interest in getting these decisions right."