Next’s sales surged over Christmas – so why did the City seem so underwhelmed?

It’s exam results time for retailers. That time of year when their CEOs queue up with their festive trading statements and endure a facsimile of their student years as they await their grades from a wintry City of London.

Reputations, even careers, are made and broken at this time of year. It doesn’t help that Next is usually at the front of the line – it traditionally gets its trading statement in early. It also usually sets a very high bar for the rest of them.

With a 20 per cent rise in festive sales (compared to 2019’s numbers), £70m added to the full year revenue forecast, and a predicted £20m extra in profits for shareholders to feast upon, it raised the bar again.

With this latest update, the clothes retailer has confirmed its status as the school swot of the high street’s noisy classroom. The one that (nearly) always hands in its homework on time, studies hard and delivers on its promises.

The fact that it so consistently outperforms is all the more remarkable when you consider that what it sells is casual clobber. Everyday clothes. There’s no secret sauce involved (other than competent management). There are other places that stock what I see as similarly attractive gear at much more competitive prices.

So another “A” banked, a chorus of cheers on the conference call for CEO Lord Wolfson, and time for investors to take a bite at the shares, which have been a little wobbly of late.

Erm, not quite. The market said, sorry, you get a “B minus” at best, maybe a “C plus”, and anyone fancy the Next stock we’re holding at a knockdown super sale price? We’re offering. Step right up. They’ll look great in your portfolio, honest.

True, the market was slow, but Next shares undershot it by quite a bit. Perhaps it was down to the company asking the following question: “To what extent has the buoyancy of the last nine months been the result of pent-up demand combined with the spending of savings accumulated over the pandemic? How much of this will reverse out as we move through next year?”

Retailers have taken to comparing their 2021 numbers with 2019 because the Covid pandemic-related issues of 2020 make any comparisons with that year all but meaningless. The nation’s high streets were shuttered, for starters.

Next’s 2021 numbers look great in comparison to 2019 but with its wordy question, one of a list of them, the company was saying 2021 might prove to be a pretty odd year in retrospect.

Factor in rising costs and the fact that the retailer plans to ask its customers to accept some funky price rises, and Lord Wolfson is going to find it tough to scrape a pass in next year’s exam, let alone to emerge from the tumult with his shop’s usual flying colours intact.

Here’s the real worry: if this is what life is looking like for the high street’s prefect, how’re the kids at the back going to fare?

The “headwinds” City folk like to talk about include rapidly rising prices and rapidly rising taxes, and slow to stagnant pay growth for most people. Not to mention rapidly rising personal debt. Those people who indulged in a Christmas splurge in 2021 may be inclined to batten down the hatches in 2022. They may not have much choice.

This explains the City’s apparent scepticism with respect to Next’s results, its stinginess when it comes to giving out good grades and its reluctance to shell out for shares, however deep the discount on the sale rail looks to be.