// Next says sales in the Christmas period have been better than it anticipated
// The retailer has increased its pre-tax profit guidance for the full year by +£20m to £860m
Next has raised its profit forecast after the fashion retailer thrived during the Christmas shopping season despite the UK’s ongoing cost-of-living crisis.
Next said it now expects full-year pretax profit of £860 million, up from a previous forecast of £840 million and said this forecast is based on full-price sales in January being
broadly flat versus last year.
Full-price sales rose 4.8% year on year in the nine weeks through December 30, beating previous guidance of a 2% decline.
Despite the rise, Next said it would “remain cautious in our outlook for the year ahead.”
Initial guidance for the year ending January 2024 is for full-price sales to be down -1.5% to £4.5bn and profit before tax to be £795m, down -7.6% versus the current year.
It said that some might think this forecast is overly cautious in the context of its performance in the second half of this year.
But Next said it believes that inflation, rising mortgage costs and continued price inflation are likely to dampen demand although it said it expects employment to remain strong so is not anticipating a collapse in demand or any increase in bad debt over and above its current provisions.
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Amid soaring inflation in the UK and Next now expects the cost price inflation on like-for-like goods to peak at around 8% in the Spring Summer season.
Although it expects inflation to be no more than 6% in the second half and said this
Autumn/Winter figure is only an estimate at this stage, as it is still negotiating prices; but said it does appear that cost pressures are now easing through a combination of reducing freight costs and lower factory gate prices.
In addition to the increases in the cost of our goods, the retailer said it is also experiencing increases in UK operating costs, mainly as a result of UK wage inflation and energy costs.
It added that it has fully bought its electricity requirement for the year ending January 2024 at rates significantly higher than the current year.
The business saw both online and retail exceeded its full-price sales expectations, with retail being particularly strong, up +12.5%.
In the trading update the business said: “We think that we underestimated the negative effect Covid was having on our Retail sales last year. We may have also underestimated the effect improved stock levels would have on both businesses.”
Retail Economics chief executive Richard Lim said: “These results are all the more impressive given the harsh squeeze on household finances. Store sales were particularly strong with shoppers opting to head back into physical locations to seek out the best deals and keep a tighter grip on their budgets.
“Costly online deliveries, being charged for returns and the uncertainty of whether online orders would be received in time because of strike action played into the hands of omnichannel retailers. Next’s best-in-class proposition was well-positioned to benefit from this disruption as they leveraged the value across their joined-up physical and digital platforms, providing an array of options for customers.
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