Next shrugs off snow woe - but chilling news from HMV

The snow hasn't stopped Next forecasting a 10% profit hike - but it's made a bad situation even worse for poor old HMV...

by James Taylor
Last Updated: 19 Aug 2013
Next and HMV were the first of the big retailers to release sales figures for the Christmas period today, and it's fair to say that they had rather different stories to tell. Both were hit hard by the rotten weather in the run-up to Christmas. But whereas Next is still expecting to deliver full-year profits nearly 10% up on last year, ailing HMV has been forced to issue a profit warning and close 60 stores after its sales plummeted even further. The latter’s problems clearly run a whole lot deeper than a few inches of snow. But with a tough 2011 already in store right across the high street, the white stuff was exactly what stragglers like HMV didn't need...

Things are looking pretty grim for HMV (even grimmer than before, in fact, which is saying something). It said in a statement this morning - a week before its scheduled update - that like-for-like sales were down more than 13% in the last 10 weeks of 2010, thanks to the 'challenging entertainment markets' and the 'severe weather over our peak trading period'. With profits now expected to come in 'around the lower end' of current forecasts (£46m-£60m), it's in danger of breaching the covenants on its bank loans. So it's having to take drastic action to cut costs: it plans to close no fewer than 60 stores in the next year, as well as finding an additional £10m of cost-cuts from elsewhere in the group.

The trouble for HMV, of course, is that things aren't likely to get any easier any time soon. Even if the snow doesn't come back, it's still likely to be battered by the 'consumer headwinds' (aka lower spending) that will affect most retailers in 2011. And then there's the broader question of whether HMV's entire business model - which relies on people buying books, CD, DVDs and games in shops on the high street - will soon become as defunct as a dodo's deerstalker. No wonder, then, that its share price has plunged by a quarter today. CEO Simon Fox is still talking a good game - and the relative improvement in Waterstone's sales is a positive sign. But he faces an uphill challenge, to say the least.

However, it's a different story for his fellow Simon at Next - or CEO Lord Wolfson, to give him his full title. After years of lacklustre performance, Next seems to be holding up pretty well under his Lordship's leadership: despite a £22m snow hit, it's still expecting to deliver profits of up to £555m for the full year. That's 10% more than last time round.

Wolfson did have a warning for punters, though: he said Next's prices could go up by as much as 8% in 2011, thanks partly to the VAT hike and partly to the higher costs of raw materials. If this translates into lower spending across the board, HMV certainly won't be the only retailer to feel the pinch.

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