Next Boosts U.K.'s Brexit-Hit Shops With Stronger Christmas

(Bloomberg) -- Next Plc brought some cheer to U.K. retailers struggling with Brexit-related costs and the rise of online shopping, reporting stronger-than-expected Christmas sales and lifting its profit guidance.

Shares of the apparel and home-furnishings chain, the first major British retailer to report on the holiday season, rose as much as 9.9 percent after it said price pressure would ease over the coming year. Marks & Spencer Group Plc and Debenhams Plc each were up more than 4 percent early Wednesday in London.

“All of the issues in the wider consumer environment are still going to be there but our sense is that they are easing,” Next Chief Executive Officer Simon Wolfson said on a call. “We don't think the year ahead will be as tough as the year that's just gone.”

Wolfson has a record of insightful assessments of U.K. consumers' health, warning a year ago that apparel spending would suffer as discretionary income was squeezed. His cautiously optimistic view brought some relief to a sector hit by a shift to online shopping and the rise of what Next called “experiential spending at the expense of clothing.”

“Next's results are a belated, but very welcome, Christmas present for investors across the retail sector,” George Salmon, an analyst at Hargreaves Lansdown, said in a note.

Full-priced sales under the Next brand, boosted by cold weather that prompted Britons to restock winter wardrobes, rose 1.5 percent in the 54 days through Dec. 24, compared with the median analyst estimate for a 0.5 percent decline. The company raised its profit outlook for the current year, which ends in January, by 8 million pounds to a midpoint of 725 million pounds ($985 million).

Weak Pound

Next, which imports most of the clothes and furniture it sells in the U.K., said costs will rise 2 percent in the first six months of the coming year and stay flat in the second half. After plunging in the wake of the U.K.'s 2016 vote to leave the European Union, the pound has stabilized at a lower level in recent months, easing inflationary pressure.

Wolfson cautioned that consumer demand remains subdued. Sales were boosted by a strong performance in Next's online business, while its physical stores continue to lag behind. Next's Directory unit, which includes digital sales, accounts for more than 40 percent of total revenue.

TCC Global analyst Bryan Roberts warned that Next's holiday strength might not be replicated by store owners with less advanced digital businesses. Retailers like apparel chain New Look Retail Group Ltd. and department-store operator House of Fraser Ltd. are under growing financial pressure.

“Next's strong online business has been a real savior for them,” Roberts said by phone. “Anyone without a significant online presence will be feeling the pain. Christmas was too little, too late for a lot of retailers.”

To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade

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