Next cuts profits guidance amid UK turmoil

LONDON – UK fashion retailer Next has issued a profit warning, stating that its full-price sales are expected to drop in second half of the year. The business said predicting sales trends is unusually difficult in the current climate, with the cost of living crisis and UK financial meltdown threatening the worse economic downturn since the 2008 crash (and potentially beyond).

Next’s guidance for full-year profit before tax, which was raised in a trading update in August by £10mln to £860mn, was cut to £840m. The decision to update just a month and a half after the last announcement shows the current turmoil in the markets. A run in UK Sterling is creating a huge headache for the UK authorities.

Full price sales at Next are also expected to be 1.5 per cent lower in the second half of 2022, with the retailer saying the cost-of-living crisis resulted in a below-expectations August.

“We think it is sensible to moderate our expectations for sales and profit in the second half,” it said in its interim results.

Next said September trading improved, and recent government measures which saw the pound plummet and led the Bank of England to intervene may bring some benefits.

Next said that there are variables, including energy, economic migration, tax and employment.

For the six months to end-July 2022, Next said it had a “good first half.”

Brand full price sales were up 12.4 per cent compared to the same period in 2021, with overall sales ahead of expectations, while profit before tax was up 16 per cent to £401mn.

Commenting on Next plc’s half-year results, Rosalind Hunter, partner at global consultancy Simon-Kucher & Partners, said: “Just a month and a half since its last update, Next PLC released results this morning demonstrating the changing tide of consumer sentiment over the last quarter. Their H1 retail sales were up 63% versus the same period last year where lockdowns were still impacting store traffic, although performance worsened in August. Formal wear a key product line supporting this growth as the UK population increase their pre-lockdown activities alongside price increases of 8% across ranges. Online sales mirror those released by boohoo yesterday, with revenues down 5% versus last year. In addition, higher-than-forecasted return rates on aggregators are also highlighted.

“However, the forecast for H2 reflects the difficulty in navigating the current environment boards are facing across the country. Both sales and profit guidance has been lowered and its clear performance will be heavily reliant on external factors over the coming months. While their costs, mostly stated in US dollars, are now beginning to stabilise, the impact of the pound devaluing is clearly counteracting this. The statement is clear that the government’s next steps will be key in deciding their cost development and margin performance in H2.”