Next Plc raised its profit forecast as a December cold snap brought British shoppers back into stores in search of winter clothing, defying gloom about weakening consumption and the UK’s cost-of-living crisis.
(Bloomberg) — Next Plc raised its profit forecast as a December cold snap brought British shoppers back into stores in search of winter clothing, defying gloom about weakening consumption and the UK’s cost-of-living crisis.
The UK retailer now expects full-year pretax profit of £860 million ($1 billion). Full-price sales unexpectedly rose 4.8% in the last weeks of the year, beating guidance for a 2% decline. The stock rose as much as 6.8% to a four-month high.
With hundreds of stores across the UK, Next is considered a bellwether for British retailers, and it’s the first to report on how high inflation, falling consumer confidence, train strikes and snow affected sales last month.
Still, Next said it’s cautious about the financial year that runs through January 2024, forecasting pretax profit will drop to £795 million as full-price sales decline and cost inflation erodes profitability. 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.
The retailer’s forecast for an 8% decline in pretax profit will make Next one of the most resilient retailers this year, wrote Caroline Gulliver, an analyst at Stifel. 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 already 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 it expects higher energy and mortgage costs to weigh on consumers. Next also forecast cost inflation to peak at 8% in the spring-summer season and then no more than 6% in the second half as prices for freight and garments ease.
(Updates with shares in second paragraph, analyst comment in fifth)
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