Next has warned that an equal pay ruling could force it to close stores despite issuing the latest in a long string of profit upgrades.

The company - which is close to joining the short list of UK retailers to generate annual profits of £1 billion - said an employment tribunal ruling issued last month will hamper "individual" profitability across its estate of more than 450 stores. That ruling said that Next should pay its store staff, who are predominantly women, the same hourly rates as its mostly male warehouse workers.

Next is appealing against the decision, but if unsuccessful it is thought the company could have to pay more than £30 million to settle the claim which was first lodged in 2018 and includes more than 3,500 current and former shop workers.

Read more: 

“Materially increasing store operating costs will result in more shops being closed when their leases expire, and will materially impede our ability to open new stores going forward," Next said. It also warned of ripple effects across its warehouses, where it will be unable to raise wages without doing so in stores. 

“If, for many people, warehouse work is less attractive than work in stores (as the evidence before the Tribunal showed), how can a warehouse attract the number of employees it needs?".

The comments were contained within the group's half-year results in which it posted a 7.1% increase in pre-tax profits to £452m for the six months to the end of July. Sales during the period reached £2.95bn, up 8% on the same period a year earlier.

Sales since then have been higher than previously anticipated, prompting the company to raise its full-year guidance for the second time in two months.

The high street giant, whose subsidiaries include brands such as FatFace and Reiss, added £15m to its annual forecast which now stands at £995m. Only a handful of UK retailers such as Tesco and Marks & Spencer have ever generated an annual profit of £1bn.

Total group sales surged 8% in the first half of the year to £2.9bn, and full-price sales were 4.4% at £2.36bn. Full-price sales “materially" exceeded expectations in the first six weeks of its second half, up 6.9%.

Read more:

Next said it is benefitting from "converging" tastes in international fashion as tech platforms expose consumers to global trends, which is boosting its overseas sales. The likes of Netflix, YouTube and TikTok are “exposing people to international fashion trends in a way they never have been before”, while improving international delivery networks are encouraging consumers to try clothes from other countries.

Simon Wolfson, the chief executive of Next, said the business was “at the start of a new phase” with more than half of its sales and profits now online and rapid growth in sales of non-Next brands, some of which the group now owns. Non-Next brands now account for 17% of overseas sales and the group has been experimenting with expanding wholly-owned labels such as Cath Kidston, which is bought out of administration last year.

"Although the group has highlighted potential weakness in its UK division – partially explained by poor summer weather – significant growth across its international operations is more than making up for that," said Zoe Gillespie, investment manager at RBC Brewin Dolphin.

"There may be no further acquisitions planned for the remainder of the year, but Next is in a prime position to seize the right opportunities when they do arise."

Shares in Next closed yesterday's trading 55p higher at 10,390p.