Next raises forecast as Christmas sales defy retail gloom

Next raised its profit forecast as a December cold snap brought British shoppers into stores in search of winter clothing, defying gloom about weakening consumption and the UK’s cost-of-living crisis.

The British retailer now expects annual pretax profit of £860 million (€973.7m) after full-price sales unexpectedly rose in the last weeks of the year. The company also forecast inflation will peak in the spring-summer season and moderate in the second half. The stock rose as much as 9.3 per cent.

With hundreds of stores across the UK, Next is considered a bellwether for British retailers, and it’s the first to report on how rampant inflation, falling consumer confidence, train strikes and snow affected Christmas sales. The company has a strong online business and has more out-of-town locations than some rivals, making it less vulnerable to the effects of the UK’s transport strikes.

Next said, however, it’s cautious about the financial year that runs through January 2024, forecasting pretax profit will drop about 8 per cent as higher energy and mortgage costs weigh on consumers. Delivering that forecast would make Next one of the most resilient retailers this year, wrote Caroline Gulliver, an analyst at Stifel. “

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Consumers are under pressure, but they came out of the pandemic with very strong savings, and underlying employment is strong in the UK, chief executive officer Simon Wolfson said in a phone interview. “A combination of those two factors gave consumers the ability to continue spending on the things they wanted to buy over Christmas.”

Wolfson said Next is already negotiating purchases for its autumn-winter season this year and can see cost pressures easing. Next is forecasting cost inflation to peak at 8 per cent in the spring-summer season and then no more than 6 per cent in the second half as freight and garments prices moderate. “We can see the light at the end of the tunnel in terms of prices,” said Wolfson. “If we can then chances are the whole of our sector and many other sectors will be seeing exactly the same thing.”

The retailer has emerged as one of the beneficiaries of the cost-of-living crisis that has seen smaller rivals collapse. Next bought both fashion chain Joules and furniture brand Made.com out of insolvency late last year.

End-of-season sales are progressing well, and Next is clearing inventory ahead of expectations, the company said. Discounts have been bigger than the year before due to higher stock levels, and Next expects its excess stock position to be corrected in the year ahead.

The retailer said that it had underestimated quite how much Covid depressed store sales last Christmas and also that higher stock levels helped the business deliver this year.

Many retailers discounted earlier and deeper than usual in the approach to Christmas, leading overall inflation in UK stores to dip in December for the first time in over a year, according to the British Retail Consortium. – Bloomberg