Next downgrades sales and profits forecast as consumers rein in spending

By

Sandra Halliday

Published
Sep 29, 2022

Next is one of the most successful fashion retailers in the UK, so when it downgrades profit guidance that it only upgraded last month, you know the sector as a whole is facing tough times. And that’s just what it did on Thursday.

On the plus side, the company said performance in the six months to July saw brand full-price sales up 12.4% year-on-year and up 22.3% against 2019. And profit before tax was up 16% at £401 million, while also being up 22% against three years ago.

But August trade was below its expectations with a dip of 3% and cost of living pressures “are set to rise in the coming months”. Sales in September have improved, and it thinks it “may see benefits from recent Government measures”. 

Yet it added: “It is a very difficult call but, on balance, we have decided to reduce our forecast for full-price sales in the second half from +1% to -1.5% versus last year. We have reduced our profit guidance for the full year from £860 million to £840 million, up 2.1% on last year.”

That's not the worst guidance out there at present as other companies, big and small, are downgrading their expectations for the season ahead. But, as mentioned, Next is something of a bellwether for the UK retail sector and the fact that it's feeling less confident (even with expectations of a healthy profit) is big news. 

Looking back at the first half, the company said it was a good period overall with sales ahead of expectations driven by the over-performance of its Retail stores and strong sales for formalwear. Those stronger-than-anticipated sales also delivered better-than-expected profits, albeit with margins impacted by the increase in the cost of servicing it's Online business overseas and increased spend on software development. 

But the dip in August – despite an improving September – has clearly made the company pause for thought and while it admits that it may be too pessimistic, it also said it may not be pessimistic enough. And it added that success this season will depend on how well it adapts the business to recognise and face up to the challenges that materialise and to grab any opportunities that arise.

That means it's focusing on achieving better operating efficiencies in its online warehouse and distribution operations; improving the speed, accuracy and consistency of its online delivery service; increasing the profitability of its fastest growing areas such as Label and overseas ops; enhancing its website; and looking to push the boundaries of its supply base to help counter currency issues next year.

It also said prices for its AW22 ranges are already up an average of 8% compared with 2021 as passes on higher costs to customers. And it expects to see similar rates of inflation for its SS23 season.

CEO Simon Wolfson said: “There are so many variables at play – energy, freight, employment, tax, economic migration, exchange rates, etc – that today, more than ever, it is not possible to predict the future on the basis of the past.

“It is over 40 years since the UK last experienced an inflationary shock on the scale we are witnessing today; and the UK economy of the 1970s – with its reliance on highly subsidised and geographically concentrated heavy industry – was incomparably different to the economy of today.”