Next raised its annual profit forecast after sales increased due to warmer weather and people buying outfits for weddings and other social events, but warned of a slowdown in the coming months due to cost of living crisis.
The clothing and home goods chain said full-price sales rose 5% in the three months to July 30 compared with the same period a year earlier. “Many product trends have returned to pre-pandemic standards, with lockdown winners such as home and sportswear retreating and formal wear returning to favour,” Next said.
However, the company said sales had increased in an unusually warm summer, but added that the impact of high inflation on consumer spending was “likely to worsen in the second half”. In the first half of the year, it increased prices by 3.7%, and in the second half it plans a further increase of 8% – 6.5% for fashion and 13% for home goods.
Sales were better than expected due to a hot period in June and July, as well as a “significant return to formal wear” driven by an increase in social events. The sales figures prompted Next to raise its full-year profit estimate by £10m to £860m, which, if correct, would be 4.5% higher than last year.
Next stores also benefited from the closure of a number of competing outlets over the past three years, the company said, adding that sales were 4.7% higher than pre-pandemic levels.
The chain, which is considered the leader of the UK economy, does not expect its recent sales performance to be sustained in the second half of the year as customers hold back on spending. The next follows the sales growth forecast of 1% by the end of the year.
The company said product return rates had risen again and were close to pre-pandemic levels of 42%. During the pandemic, when home goods, children’s clothing and sportswear were popular, far fewer customers were returning items. Such items tend to be less likely to be returned.
Online sales fell 11.1% in the first quarter compared to the same period last year The following stores were closed during the Covid lockdown, and rose 0.2% in the second quarter. However, compared to pre-pandemic levels, online sales rose 44% in the second quarter, suggesting they will continue to grow in the long term.
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Richard Lim, chief executive of consultancy Retail Economics, said: “These are good results against a very challenging trading environment. Businesses have responded quickly to changes in consumer trends, many of which have moved closer to pre-pandemic norms as many of us return to the office and enjoy summer social events.
“However, a tone of opportunistic luck and caution for the future. As summer draws to a close, the cost of living crisis will hit households across the country the hardest. Consumers will look to delay, cut back and cancel some purchases altogether as rising prices on essentials erode any spare cash they have left at the end of the month.”
Shares in Next rose 2%, making the retailer one of the top performers on the FTSE 100 on Thursday morning.
