Next raises profit outlook again but warns of further price rises

Retail chain Next has delivered yet another profit upgrade thanks to soaring demand for partywear over Christmas, but warned over steeper price hikes in the year ahead.

The group said festive trading was better than expected, with total full-price sales up 20% against pre-pandemic levels two years ago in the eight weeks to December 25 after it rang up £70 million more sales than forecast.

Chief executive Lord Simon Wolfson told the PA news agency that the spread of the Omicron variant of coronavirus failed to dent trading as demand for formal wear “came back with a vengeance” in the company’s final festive quarter.

Next said it expects pre-tax profits to rise by 9.8% on a two-year basis to £822 million for the year to the end of January, against previous expectations of a 6.9% rise to £800 million – raising its profit outlook for the fifth time in 10 months.

It delivered a 160p-a-share special payout to investors thanks to the festive trading boost.

But Next warned that prices will rise by as much as 6% by next autumn and winter as it battles against soaring costs of freight transport and higher staff wages.

Lord Wolfson said rising inflation in the wider economy may hit consumer spending if Britons are forced to prioritise spending on food, fuel and heating their homes.

“The bigger question for us is if the prices of goods such as heating bills and goods go up, where consumers do not have a choice but to spend more, and that means less discretionary spending,” he said.

He said the group is seeing “above average” levels of staff absences due to the Omicron wave, but that service levels are not being affected.

However, Next said deliveries were hit before Christmas due to staff shortfalls in warehousing and distribution networks.

“The fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period,” it said.

The group added that it expects sales to rise by 7% year on year in its next financial year, but warned that growth will be “much weaker” after the first quarter as it comes up against tougher comparisons.

It also flagged that trading may pull back as the pent-up demand which boosted trading over 2021 starts to wane, with sales growth set to drop to 3% in its final quarter.

Despite this, it is predicting pre-tax profits to rise by a further 4.6% to £860 million in the year to January 2023.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, hailed Next as the “shining jewel” in the high street’s crown thanks to its success in shifting sales online to offset pandemic store woes, while also managing stock levels and staff shortages well.

She added: “While a tempering of performance is coming down the pipes, that’s not to say there’s a crisis in the making at this point, and Next should be well placed to face any inclement weather.”