Next to repay £29m in Covid rates relief amid strong revenue growth

Next has reported strong revenue growth as shoppers returned to its clothing stores after the Covid-19 lockdown reopening and as a result has decided to repay £29m of business rates relief to the government.

Shares in the bellwether retail chain soared 10% in early trading on Wednesday, making Next the biggest FTSE 100 riser as investors responded positively to the news that it was raising its profit forecast for the third time in four months.

The clothing and homeware retailer’s full-price sales over the past 11 weeks, between early May and 17 July, were almost 19% higher than during the same period two years earlier, before the pandemic. The company had previously forecast a 3% increase.

The latest profit increase – after upgrades in April and May – means Next is now expecting to make £750m of pre-tax profit this year, £30m more than at its last forecast in May.

The new profit forecast is after a deduction of £29m in business rates relief, which Next is repaying to the government, covering the period this year when its shops were open but were not charged rates.

Next has emerged as a big winner from the pandemic and experienced increased demand for products such as clothing since its stores in all four nations of the UK were allowed to reopen during April.

The company has been surprised by its levels of sales, ever since the easing of coronavirus restrictions unleashed pent-up demand for adults’ summer clothing. Next said many shoppers did not buy many clothes last summer, which meant it got a boost from the warm weather at the end of May and the start of June this year.

The retailer believes the reduction in foreign holidays taken by Britons this year has bolstered domestic spending, while consumers also have extra cash in their pocket after saving money during the pandemic.

Next’s online sales jumped by 63% in the first quarter of the year, making it the UK’s biggest internet clothing retailer – ahead of rivals such as Asos and Boohoo. Its online sales have come down in recent weeks, with shoppers flocking back to its reopened stores instead.

The retailer does not expect its sales to continue at what it called “these exceptionally strong levels” but it has also upped its sales guidance for the second half of the year from 3% to a 6% increase.

Its soaring sales have also prompted Next to restart shareholder payouts after a pause in 2020. It will pay a special dividend to its shareholders in September and said it expects to distribute £240m to investors during the current financial year.

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