Next warns “greatest challenge” will be demand

Next warns

Next plc (LON:NXT) warned on Thursday that the “greatest challenge” it faces concerning the evolving COVID-19 outbreak is the risk it poses to demand.

The company said that it must prepare for a “significant downturn” in sales as the situation continues to develop.

Shares in Next rose by over 10% on Thursday. The company did see total group sales for the year ending January 2020 rise by 3.3% to £4.36 billion, with group profit ahead of its guidance at £728.5 million.

However, Next is unable to predict the extent that COVID-19 will hit its retail and online sales looking ahead.

Though the virus is likely to impact its operations, Next does not expect this to be as damaging as the “very significant drop” in both retail and online sales.

“Online sales are likely to fare better than Retail but will also suffer significant losses. People do not buy a new outfit to stay at home,” read the Chief Executive’s review.

Indeed, as the government accelerates its measures to contain the spread of the illness, people are being advised to stay at home and avoid all non-essential travel.

“We have included a detailed stress test that gives the likely cash and profit impact for different levels of sales decline,” the Chief Executive’s review continued.

“The conclusion of our stress test is that the business could comfortably sustain the loss of more than £1bn (25%) of annual full price sales, without exceeding our current bond and bank facilities. This accounts for the business rates holiday announced by Government but excludes any use of Government lending or any measures that may be introduced to help with wages during closure.”

Elsewhere in retail, Laura Ashley (LON:ALY) collapsed earlier this week as the COVID-19 outbreak immediately hit trading.

Shares in Next plc (LON:NXT) were up on Thursday, trading at +10.05% as of 11:11 GMT.

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