Next cuts guidance as rising inflation dampens consumer demand

Full price sales at Next plc were up 12.4 percent versus 2021 and up 22.3 percent versus 2019. Total trading sales including markdown sales were up 12.8 percent versus 2021 and up 21.3 percent versus 2019.

Profit before tax was 401 million pounds, which was up 15.5 percent versus 2021 and up 22.4 percent versus 2019.

However, Next has reduced its sales guidance for the second half to be down 1.5 percent, resulting in full year sales guidance of up 4.8 percent. Sales to date in August and September were down 0.3 percent.

Next slashes full year outlook

The company said in a release that August trade was below expectations and cost of living pressures are expected to rise in the coming months.

“Sales in September have improved, and we may see benefits from recent Government measures.”

“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 up 1 percent to decline of 1.5 percent versus last year.”

“We have reduced our profit guidance for the full year from 860 million pounds to 840 million pounds, up 2.1 percent on last year. Earnings Per Share, assuming the recently announced change in UK corporation tax rate is enacted before the year end, is forecast to be 545.1p , up 2.7 percent versus 2021.”

The company is of the opinion that the three possible reasons for the slowing of sales in August could be the heatwave after summer sale, at a time when customers usually start to buy their early autumn and back-to-school wardrobe, more people taking holidays away from home, particularly relative to last year, when many people were still wary of travelling abroad and the waning of consumer confidence as increasing energy and other costs begin to dampen demand for discretionary spending.

Highlights of first half results at Next retail and online

Next retail full price sales were down 1 percent versus three years ago, while total sales including markdown sales were up 1 percent versus three years ago.

Operating profit was 82 million pounds, up 34 percent against three years ago. Net margin was 9.3 percent compared to 7 percent margin three years ago.

In the second half, the company is forecasting retail full price sales to be up 3 percent versus last year and down 5 percent versus three years ago. Based on this sales guidance, Retail operating margins including lease interest is forecast to be around 10.5 percent for the full year.

Online full price sales compared to three years ago were up 46 percent, representing an annual compound growth rate (CAGR) of 13.5 percent. Online full price sales against last year were down 6 percent.