Shares in Next are trading more than 4 per cent higher this afternoon after the fashion retailer raised its full-year sales and profit guidance in an unscheduled trading update.
The group, which is considered a barometer of how UK consumers are faring, said trading in the last seven weeks exceeded expectations on the back of warmer weather and a wages boost for consumers. Full-price sales were 9.3% higher than in the same period a year earlier, versus previous guidance in May for a decline of 5%.
Next, which trades from about 500 stores and online, said the onset of warmer weather made a significant difference to its performance, particularly coming after a wet and cold April. Trading was also boosted by an increase in consumers' income from annual salary increases in April, which delivered a temporary uplift in real household income at the time they were awarded.
READ MORE: Next shares fall as retailer predicts 'difficult year' to come
"For example, during April annual inflation was running at 8.7% and monthly inflation was 1.2%; if an individual received a pay rise of 5.0%, then their real income would have risen by 3.8% in that month," the company said.
"We do not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards."
However, Next also cautioned that this could unwind in the coming months.
READ MORE: Grocery inflation hits new record high
"If recent pay rises and the sudden change in weather have indeed contributed to the current over-performance, then it is reasonable to expect that the effect will diminish over time because ongoing inflation will slowly erode the positive effect of annual pay increases," the company added.
"This is why we are not anticipating the current performance to continue at the same level going forward, albeit we have moderately improved our guidance for the rest of the year."
Next upgraded its full price sales guidance for the year by £140m to £4.67 billion, and its profit guidance by £40m to £835m, down from the £870.4m made during the 12 months to the end of January.
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