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Next upgrades profit forecasts as third quarter sales come in better than expected

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Next PLC (LON:NXT) has upgraded its profit forecasts for its current year as the clothing retailer reported sales in its third-quarter had been better than expected thanks to a strong performance from its online operation.

In a trading statement for the third quarter ended October 24, 2020, the FTSE 100 firm reported that total full-price sales including interest income for the period were up 2.8% year-on-year, with a 23.1% jump in online sales offsetting a 17.9% decline in sales in retail stores.

READ: Barclays starts Next with ‘overweight’ rating citing online offer progress

Next noted that it’s home and childrenswear divisions were over-performing, while demand for its formal and occasion clothing remained weak.

As a result of the third-quarter performance, the firm now said it is now forecasting a full-year pre-tax profit of £365mln, up from a £300mln forecast last month, while net debt is also projected to fall by £487mln to £625mln.

However, the company warned that there remained a “very high degree of uncertainty” to its estimates and much will depend on the progress of the coronavirus pandemic.

Next’s central scenario for the fourth quarter is forecasting a potential 8% drop in sales as a result of local lockdowns and supply constraints, while its downside case estimates a possible 20% decline.

In a note on Wednesday, analysts at Liberum rated the company at ‘hold’, saying that they saw the update as a “strong reflection of Next’s superior online platform”, which provided a “profitable route to market for brands by leveraging Next’s well-invested infrastructure”.

Meanwhile, analysts at Shore Capital, which also reiterated their ‘hold’ rating, said Next remained “a well-managed company with tight cost control, good stock management and good cash generation”.

“There is no doubt in our mind that Next has rebounded well from April and May and beaten our expectations, again”, the broker added.

Despite the better performance, investors seemed apprehensive on the cautionary outlook, with Next shares 0.6% lower at 6,052p in early deals.

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