UK retailer Next lifts outlook on strong clothing demand

Next has pushed up its full-year profit forecast after warm weather boosted first-half sales at the UK fashion retailer and high street bellwether.

The company, whose analysis of sales trends is closely watched by the rest of the industry, said it expected full-year pre-tax profit of £860 million, (€1.2 billion) up £10 million on its previous expectation and 4.5 per cent in advance of last year.

Next said on Thursday that in-store sales grew 12 per cent compared with last year and 4.7 per cent on pre-Covid levels, bucking a long-standing trend of gradually falling store sales.

Chief executive Lord Simon Wolfson said he was taken aback by the strength of the rebound but could not say whether it would continue. “It is the million-dollar question... it is possible that mix is a factor and that people are more likely to want to try on things like suits or dresses.”

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The company had expected sales in stores to remain static even though the comparative quarter last year included a reopening after lockdown, but sales of formalwear for work, occasionwear for weddings and christenings and holiday clothing had boosted demand.

“We can definitely see that in the sales numbers, the sorts of beach and swimwear we are selling point to overseas holidays rather than domestic ones,” Lord Wolfson said. The recovery in formalwear sales could be a medium-term trend, or it could be just a boost from restocking, he added.

The company might also have gained from the withdrawal of big competitors such as Arcadia and Debenhams, both of which liquidated their remaining stock at big discounts in the first quarter of 2021 after entering administration.

“I suspect almost all fashion retailers have performed better on the high street than the high street itself has,” Lord Wolfson said. “But it is unlikely to persist. You cannot gain that market share again the following year.”

The sales growth in stores was more than enough to cancel out the effects of worse-than-expected clearance rates of sales stock, higher logistics costs and a return to more typical return rates in the online business.

However, the group said it expected the long-term trend of store sales gradually migrating online to continue and that discretionary incomes would come under more pressure in the second half of the year. Its central sales forecast for the second half remains unchanged at just 1 per cent growth.

On the cost side, Lord Wolfson said pressure on factory-gate prices was easing and that freight rates and lead times were moderating, though they were not yet back to pre-Covid levels.

Next is planning price increases of about 6 per cent across clothing lines in its autumn and winter collections, with higher increases in homewares where freight costs are a greater proportion of the overall price.

Next shares were up 2 per cent in early trade to £69.56. Deutsche Bank analyst Adam Cochrane said the upgrade, however small, was reassuring in an environment where many retailers were reducing guidance.

— Copyright The Financial Times Limited 2022

(c) Copyright Thomson Reuters 2022