Next profits set to drop 8% amid high street gloom

Next profit forecast

Analysts predict Next will report a drop in full-year profits next week as the high street endures a gloomy period as a result of a decline in consumer confidence and spending.

A consensus of City analysts are expecting an eight per cent fall in annual pre-tax profits to £725 million for the fashion retail giant, despite posting a rise in sales over the crucial Christmas trading period.

Next said full-price sales in the 54 days to December 24 increased 1.5 per cent, ahead of expectations, with part of the improvement down to the colder weather leading up to Christmas.

As a result, the high street giant – often regarded as a bellwether of UK fashion retail – increased its full-year profit guidance by £8 million to £725 million.

However, that figure was well below last year’s £790.2 million and sales at Next’s high street shops declined 6.1 per cent over Christmas.

Meanwhile, Next chief executive Lord Simon Wolfson has previously said the business will look to reduce costs by renegotiating rents with landlords and controlling wages and man hours.

However, he also said inflationary pressure would ease throughout 2018.

“Next’s Christmas trading update showed high street sales continuing to suffer,” Hargreaves Lansdown equity analyst George Salmon said.

“That’s a trend that looks set to continue, but the outlook for next year has improved.”

Salmon added: “The group expects sales growth to firm up as online continues to deliver good results.

“Meanwhile, cost inflation is expected to ease, and then disappear, over the course of 2018.

“All that bodes well – higher sales and higher margins mean doubly higher profits in the longer term.

“However, retail still accounts for a huge slice of sales, and with conditions remaining tough, it’s likely to be far from plain sailing.”

Next’s full year results will come less than a month after Toys R Us and Maplin fell into administration, with the former this week confirming that all 100 of its UK stores will close down within the next six weeks.

Debenhams, Mothercare and Carpetright have all issued profit warnings this year, and Next’s rival New Look has put out a company voluntary agreement proposal that could lead to the loss of 960 jobs and 60 store closures.

To compound matters, the Big 4 grocers have announced swathes of job cuts as part of cost-cutting drives, while House of Fraser and John Lewis Partnership have both encountered challenges in their trading performance.

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