Next lifts profit guidance after £38m Christmas sales boost

Full-price sales in the nine weeks to December 30 rose 5.7% year-on-year, 2% higher than previous guidance.

Annual pre-tax profit guidance increased by £20m to £905m. Of that £17m came from the sales beat to date and £3m from an upgraded forecast for full-price sales in January. The group also forecast a 6% rise in sales and profit up 5% for 2024/25.

Improvements to Next's online service resulted in sales rising 9.1% in the three months to the end of December. In-store sales rose by 0.6% after a fall in the prior quarter.

"Cost price inflation in our own products is diminishing, mainly as a result of decreasing factory gate prices. We believe that this will allow us to maintain zero inflation in selling prices, along with a small increase in bought in gross margins. This will be the first time in three years that input prices have been stable," the company said on Thursday.

However, it also warned of possible delays to stock deliveries in the early part of the year if attacks on shipping in the Red Sea by Iran-backed Yemeni Houthi militants force container vessels to avoid the Suez Canal.

"The largest cost increase will be wage inflation, which we expect to be around £60m. Within this, around £25m is the difference between the expected rate of general UK wage inflation, and the rise in the National Living Wage." Next also noted consumers may curb spending as higher interest rates hit those coming off fixed mortgages.

In order to mitigate against some of the cost increase, Next said it planned to recover around £17m by increasing bought-in gross margin by +0.4%, but did not anticipate that selling prices would increase in the year ahead.

Next said it expected to generate around £600m of operating cash flow, from which £250m would be paid in dividends and £275m returned via share buybacks in the year ahead. The remaining £75m would be used to cut debt.

Reporting by Frank Prenesti for Sharecast.com