Wednesday 18 October 2017

Next and H&M hit by inclement weather and economic squeeze

TWO of Europe's biggest fashion retailers, Next and Hennes & Mauritz , have endured a tough start to the year, hit by a combination of unhelpful weather and economic headwinds.

Retailers across Europe are battling a prolonged squeeze in consumer incomes as governments try to reduce their deficits. Freezing wet weather has also discouraged shoppers.

In Britain, two thirds of GDP is generated by consumer spending so a poor first quarter would increase the chances of the country dipping into a third recession in four years.

Next, Britain's second-biggest clothing retailer, said on Thursday that trading since the start of February was quiet, with sales at the bottom of a 1-4pc target growth range for 2013-14. It had issued an annual growth target of 1.5-4pc in January.

It also reported a 9pc rise in 2012-13 profit, in line with previous guidance.

Hennes & Mauritz, Europe's No. 2 fashion retailer, said it will speed up store expansion in the face of weak European demand after unusually big markdowns pushed profits down by 13pc in its first quarter, more than expected.

Next, known for making and achieving precise earnings guidance, said it expected sales to pick up.

"Unusually cold weather is definitely suppressing sales of summer stock that we'd normally be selling," Chief Executive Simon Wolfson told Reuters.

"How much difference that will make, we'll only know when we see some warmer temperatures and more spring like weather."

Wolfson said the firm is budgeting for sales in existing stores to be moderately less in the 2013-14 financial year than in the previous year, with growth in sales coming from new space and the firm's Directory online and catalogue business.

He expects Britain's consumer environment to remain subdued.

"As long as inflation is moving ahead faster than wages then people are going to have to save money from their discretionary spend in order to fund their essential spend," he said.

Shares in Next, up 43pc over the last year, were up 3pc, helped by a slightly better than expected dividend.

"The warning that the first few weeks of the year have been quiet has negative read across to Marks & Spencer and Debenhams," said Investec analyst Bethany Hocking.

Shares in M&S and Debenhams were both down 1pc.

Reuters

Also in Business