By Scott Wright
SHARES in high-street giant Next surged more than seven per cent after the retailer lifted its profit guidance for the year following higher than expected full-price sales in the nine weeks to December 30, helped by a “dramatic” boost in demand when the cold weather struck last month.
And it declared its end-of-season sale was progressing ahead of forecast, adding that it expects its prices to peak over spring and summer.
Next, the first of the major non-food retailers to report on Christmas trading this year, said full-price sales were up 4.8 per cent in the nine weeks to December 30 against the same period the year before, with both online and retail exceeding expectations. This meant sales were around £66 million higher compared with the retailer’s previous guidance of a 2% fall in sales.
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The company lifted profit expectations for the full year ending this month by £20m to £860m, 4.5 per cent higher than last year, which reflected better-than-expected full-price sales.
However, the retailer said it remains “cautious in our outlook for the year ahead”.
It is forecasting profits will fall by 7.6% to £795m, and full-price sales will dip by 1.5% to £4.5bn, for 2023/24 amid the continuing impact on consumer spending from inflation, particularly energy bills, rising mortgage costs and the higher price of its own goods. Next also noted that its own operating costs were increasing, chiefly because of wage inflation and energy costs.
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Chief executive Lord Simon Wolfson said: “Employment has held up very strongly – that’s unusual in a recession. That has given people the confidence to spend through the Christmas period.”
Next said it believed the strength of demand for warm clothing in December was “partly a result of pent-up demand from an unusually warm October and November.”
It said its end-of-season sale was “progressing well” with “clearance rates are ahead of our expectations.”
The group’s trading update showed a continued recovery on the high street, with store sales up 12.5%, while online trade remained largely flat, up 0.2%.
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Next also put its better-than-forecast performance over the period to underestimating the negative impact of Covid-19 on its stores last year, as well as the positive impact of improved stock levels this year.
However, Lord Wolfson warned: “Next year is going to be a difficult year.”
The retailer now expects cost price inflation on like-for-like goods to peak at around 8% in the spring summer season, but said it will be no more than 6% in the second half.
Next said: “This autumn winter figure is only an estimate at this stage, as we are still negotiating prices; but it does appear that cost pressures are now easing through a combination of reducing freight costs and lower factory gate (dollar) prices.”
Factory gate prices in the second half will benefit from the fall in the price of commodities such as cotton and polyester, increasing factory capacities because of a slowdown in global demand, new sources of supply, and the devaluation of some local currencies against the dollar, Next stated. It noted that much of the increase in next year’s prices will be the result of the devaluation of the pound against the dollar.
“Eighty per cent of our contracts are negotiated in dollars so the devaluation of the pound has had a significant impact on our prices,” Next said.
Shares closed up 452.61p at 6,550.61p.
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