Next lifts annual profit guidance again after strong summer sales

UK fashion retailer Next on Thursday lifted full-year guidance for the third time in four months after better-than-expected summer sales and said inflationary pressures should ease next year.

Pre-tax profits are now forecast to come at £875m from previous guidance of £845m, with brand full price sales growth increased to 2.6% from 1.8%.

"Looking ahead to 2024/25 it is likely that inflationary pressures on selling prices and operating costs will continue to ease," the company said as it unveiled a 4.8% rise in half-year profit to £420m.

Total group sales were up 5.4% to £2.63bn.

"The uncomfortable transition of sales from retail to online appears to have slowed to a more manageable level, not least because less than 35% of our sales are now in shops. Alongside this change, Retail property costs have dropped to levels more in line with current trading volumes," Next said.

"In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line. We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time (a factor we need to bear in mind when it comes to our forecast for next year)."

"It was inevitable that price inflation would ease. Even if consumers were to spend the same amount of money on clothing, higher prices would mean the number of garments sold would fall. That is what has happened."

This meant demand for labour, commodities, production and freight diminished throughout the entire supply chain - from fabric mills through to container ships. As a result, Next said prices fell faster than expected, leading it to revise autumn/winter 2023 cost price inflation down to 2% from 3%.

For next spring and summer, Next predicts that prices could fall by up to 1%, having risen 7% in the corresponding season this year.

Reporting by Frank Prenesti for Sharecast.com