Next boosted by festive partywear sales but steeper price hikes on the way
High street stalwart Next has delivered yet another profit upgrade thanks to strong demand for partywear over the festive period, but warned of steeper price hikes in the year ahead.
The group said festive trading was better than expected, with total full-price sales up 20 per cent 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 said the spread of Omicron failed to dent trading as demand for formal wear “came back with a vengeance” in the company's final festive quarter.
The group expects pre-tax profits to rise by 9.8 per cent on a two-year basis to £822 million for the year to the end of January, against previous expectations of a 6.9 per cent rise to £800m - raising its profit outlook for the fifth time in ten months.
But it warned that prices will rise by as much as 6 per cent in the second half of 2022 due to ongoing supply chain pressures.
Sophie Lund-Yates, equity analyst at investment firm Hargreaves Lansdown, said: “For all the tales of woe on the high street, there is one shining jewel to be found in the form of Next. There aren’t many bricks and mortar retailers dishing out special dividends or upgrading guidance multiple times over.”
Next said the soaring cost of freight transport and higher staff wages are likely to push up like-for-like selling prices by 3.7 per cent for the spring and summer, and by 6 per cent in the autumn and winter. It had previously said prices would rise by around 2.5 per cent in the first half of 2022.
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 group added that it expects sales to rise by 7 per cent 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.
Richard Hunter, head of markets at investment platform Interactive Investor, noted: “Set against the caveats which Next has imposed, there is reason to believe that this is a company currently firing on all cylinders with every prospect of further growth.
“Despite a slight decline in early exchanges given the weakness of the wider market, the share price performance has reflected this strength, having risen by 17 per cent over the last year, as compared to a hike of 10 per cent for the wider FTSE100.”