Retail bellwether Next has defied expectations by upgrading its full-year profit guidance for the third time in four months despite the ongoing cost-of-living crisis.
The group – which has acquired Cath Kidson, Made.com and Joules out of administration, and recently boosted its stake in Reiss from 51% to 72% – posted a 5.4% increase in sales to £2.5 billion for the six months to July, with pre-tax profits up 4.8% at £420 million. The improvement was driven in large part by a 3.2% increase in full-price sales, which had been expected to decline by 3%.
As a result, Next has raised its full-year profit guidance from £845m to £875m. That would be a 0.5% increase on the previous 12 months.
READ MORE: Next pulls yet another rabbit out of the hat
Profits were helped by lower-than-expected cost inflation as negotiations with suppliers eased with less global demand for commodities, freight service and production. Next said the prices it charges customers this coming autumn and winter are now expected to rise by 2% rather than 3%.
Performance in the first half was boosted by sunny weather in May and June which bolstered sales of summer clothing “at a critical time”. The group has also made improvements to its online deliveries which included the addition of a new picking warehouse to service orders over the internet.
“Looking ahead to 2024/25 it is likely that inflationary pressures on selling prices and operating costs will continue to ease,” Next said.
The company, led by chief executive Simon Wolfson, said it had previously underestimated the positive impact of pay increases on its customers’ spending power. It also believes it can deliver £46m more in cost savings this year than originally planned.
The company will close 11 of its 466 UK stores this year, though the locations and closure dates have not been announced.
“Six closures are in locations where we forecast that the store would not achieve our target margin on almost any terms; two closures are due to the site being redeveloped; three further closures are as a result of being unable to agree acceptable new terms with landlords,” Next said. “This last category includes one large store where the length of the lease proposed by the landlord, on a high fixed rent charge, was not something we could agree to.”
READ MORE: Next ups its stake in luxury fashion group Reiss
The company said it is introducing new designs more frequently and adding more items in a bid to appeal to a broader audience.
“We always strive to offer great value at our entry prices, but the emphasis here has been on bolstering ranges at the design-rich, middle and top end of our pricing architecture; not being afraid to add beautiful embroidery, complex prints and better fabrics, even if they add a little to the price of some items,” the company said. “The aim is to ‘elevate’ our ranges to meet the growing aspirations of our own customers and attract those who might not consider that Next is for them.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said keeping full-priced sales “front and centre” was the reason why Next can boast some of the best margins in the sector.
“But it’s a tricky strategy to nail, especially alongside expanding its online presence and introducing third-party brands to its offering,” he said. “The online channel now accounts for more than half the group’s sales. But rapid growth on this front means these operations aren’t as efficient as they could be. It opens the door for improvement though and it’s something management will need to deliver on as more and more consumers choose to shop from the comfort of their own home.”
READ MORE: Next raises profit guidance after stronger-than-expected summer sales
Russell Pointon of Edison Group said the latest full-year guidance from Next reflects a cautious optimism with full-price sales growth of 2% anticipated in the second half of the year.
“This indicates that while economic headwinds may persist, Next maintains confidence in its ability to navigate them and sustain positive momentum,” he added.
Shares in Next closed yesterday’s trading in London 244p higher at 7,350p, an increase of 3.4%.
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