Next warns of ‘challenging’ year as inflation weighs on profits

Next has warned of a “difficult year” ahead as the retail chain budgets for a drop in sales and profits amid persistent inflation.

The group, which has 466 stores in the UK, said it expected full-price sales to be down 1.5 per cent this year and profit before tax to fall 7.6 per cent to £795mn, slightly below the current consensus of £805mn.

Lord Simon Wolfson, the longest-serving FTSE 100 chief executive, said: “The year ahead looks like it will be challenging: the combination of inflation in our cost base and top line sales, which are likely to edge backwards, is uncomfortable.” 

The shares fell almost 8 per cent to 6,202p in early trading in London despite the group posting a better than expected rise in annual profits in 2022.

Profit before tax was £870mn in the year to January, up 5.7 per cent year on year and £10mn higher than its previous guidance of £860mn. Full-price sales rose 6.9 per cent year on year and were up 20.5 per cent against pre-pandemic levels.

However, the group warned that inflation would continue to drive up costs. Prices in its spring/summer ranges are forecast to rise 7 per cent and in autumn/winter 3 per cent, although the increase was “more benign than previously thought” as freight costs come down.

Josh Warner, an analyst at City Index, said the outlook “suggests that both growth and profits have peaked”. “Next is known for underpromising and over-delivering but has warned shareholders it is not being overly cautious,” he added.

The group said it still had “far more ideas and opportunities for long-term growth than it has had for some time”. It added: “And while the year ahead looks very challenging, we are not facing the kind of long-term structural obstacles that we have overcome in the past eight years.”

The traditional retail sector has been shaken by a rapid shift to online shopping and increasing competition from ecommerce rivals over the past decade.

Analysts at Peel Hunt said: “Next remains one of the UK’s leading fashion platforms, but is still only serving c. 25 per cent of households.”