Next raises profit outlook again after strong Christmas sales but warns of further price rises

Retail chain Next has delivered another profit upgrade thanks to soaring demand for partywear over Christmas, but warned over steeper price hikes in the year ahead.

The group said festive trading was better than expected, with total full-price sales up 20% against pre-pandemic levels two years ago in the eight weeks to 25 December after it rang up £70 million more sales than forecast.

CEO Lord Simon Wolfson told the PA news agency that the spread of the Omicron variant of coronavirus failed to dent trading as demand for formal wear “came back with a vengeance” in the company’s final festive quarter.

Next said it expects pre-tax profits to rise by 9.8% on a two-year basis to £822 million for the year ending in January, against previous expectations of a 6.9% rise to £800 million – raising its profit outlook for the fifth time in 10 months.

But it warned that prices will rise by as much as 6% in the second half of 2022 due to ongoing supply chain pressures.

The group said the soaring cost of freight transport and higher staff wages are likely to push up like-for-like selling prices by 3.7% for the spring and summer, and by 6% in the autumn and winter.

It had previously said prices would rise by around 2.5% 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 fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period,” Next said.

The group added that it expects sales to rise by 7% 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.

It also flagged that trading may pull back as the pent-up demand which boosted trading over 2021 starts to wane, with sales growth set to drop to 3% in its final quarter.

Despite this, it is predicting pre-tax profits to rise by a further 4.6% to £860 million in the year to January 2023.

Joshua Raymond, Director at financial brokerage XTB, commented: "Whilst this is an earnings beat, it's also worth cautioning due to the fact Next predicts prices will rise 6% to compensate for higher freight costs. Given much of the brands revival has come from adult and occasion wear sales, the challenge it will face is whether demand maintains healthy in face of rising prices. Certainly despite supply and delivery shortages, demand remained strong over the holiday season."