Next raises profit forecast after Christmas trading beats expectations

Next is a multinational clothing, footwear and homeware retailer with headquarters near Leicester and about 700 shops around the UK. In December it bought the collapsed clothing and lifestyle retailer Joules out of administration. It agreed to buy about a hundred of its shops for £34 million after a sales process led by the company’s administrators Interpath Advisory.

Next said that the onset of cold weather in December had boosted sales and comparative figures for last year had been affected by Covid-19 and stock shortages. It now expects full-year pre-tax profits of £860 million, £20 million higher than previously forecast and 4.5 per cent higher than last year. Based on this profit guidance, earnings per share would be 567.2p, up 6.9 per cent on last year. “The end-of-season sale is progressing well and clearance rates are ahead of our expectations,” Next reported.

It added, however, that it remained cautious about the year ahead. It said that initial guidance for the year ending January 2024 was for full-price sales to decline by 1.5 per cent and for profit before tax to be £795 million, down 7.6 per cent versus the current year. This figure was, however, above consensus forecasts of about £780 million.

Although inflation had eased in some areas, Next said that it expected spring and summer ranges to cost 8 per cent more than last year and autumn and winter lines to be 6 per cent more. It also said that it would have to absorb increases in electricity and labour costs.

Wolfson told The Times, however, that although retailers were “not yet through the cost price pressure squeeze, we can kind of see light at the end of the tunnel now”. He added: “Inflation in our own pricing is quite important, in that we’re still seeing cost-price inflation going into the first half of next year and throughout the whole of next year. But, importantly, inflation in prices in autumn/winter [product] we think will be less than it is in spring/summer, so we’re seeing price pressures easing as we go through the year and we think they will ease further in 2024.”

Wolfson said prices had increased because there was a “huge squeeze” on factory capacities, commodities and freight, through a combination of Covid-19 interrupting supply and “an enormous amount of pent-up demand from the pandemic for clothing”.

“The increase in prices has since dampened demand,” he said. “And as demand has eased, we’re beginning to see capacity freeing up within the system, right through from demand on commodities through to shipping. There’s a natural cycle where you have a squeeze on supply, the price goes up, demand falls and that creates capacity, which begins to bring prices back down.”

“It’s all looking much better than it was this time last year. Freight lead times have reduced, freight prices have come down and, whereas at this point last year the factories were absolutely full, that squeeze on factory capacity has actually cleared and there is now capacity available in the supply network. We’re much more confident [about] the supply chain going into this year than we were at this point last year.”

The retail analyst Richard Lim said: “These results are all the more impressive given the harsh squeeze on household finances. Store sales were particularly strong with shoppers opting to head back into physical locations to seek out the best deals and keep a tighter grip on their budgets.”

He added that the outlook remained tough. “The combination of rising mortgage costs, spiralling energy bills and ongoing inflation across staples will hit discretionary spending throughout 2023,” he said. “This recessionary backdrop set against rising operating and input costs for retailers is going to hit profits hard for large swathes of the industry.”

Comment: Anna Murphy
I have lost count of the number of fashion retailers who have quietly been in touch over the past month or so to tell me what a hard time they are having, and how it is only going to get harder.

I know. Not exactly news in the present climate. But how has Next managed to buck the trend? The fact that the high street chain has just announced an increase in full-price sales in the run-up to Christmas, despite everything, very much is news.

Above anything else it is down to Next's price point. However tough the economic situation may be people still, if the price is right, buy Christmas presents. And they still buy clothes the rest of the year, too.

The recent decades of so-called fast fashion, an approach modelled on the Japanese car industry that took off in the late 1990s, has meant that most of us have become accustomed to a fairly regular fashion hit in a way that would have been unconscionable, not to mention unaffordable, before.

Even when the going gets tough, in other words, the tough may still stump up for, say, a jumper dress.Next is selling a number of options at under £40. These may not be the best quality — they can’t be at these prices — but they will also not be the worst. Primark, for example, typically undercuts Next’s prices, but also everything else, by half.

What else is Next’s success about? The fact that it offers something for almost everyone when it comes to clothes, not to mention pretty much everything else. (There are, for example, 34 different styles of bar stool for sale on its website. Yes, 34.)

Next may not deliver high fashion or ultra cool, which in turn explains why it is not one of those high-street brands that sneakily gets worn on the front row. (That prize goes to Arket.) Yet the ordinary people who shop there are not in the market for high fashion; they want to be just fashionable enough, just cool enough. Like the girl-and-boy-next-door models on the website, rather than someone else entirely.

They want to look contemporary, not cutting edge.

Anna Murphy is Fashion Director of the Times