Market analysts have warned that a fifth profit upgrade for Next Plc in the space of 10 months hasn’t been enough to drive the share price higher as inflationary pressures on the company and consumers in general threatened a tough year ahead.
The Leicestershire-based fashion and homewares giant said Christmas 2021 sales had been helped by demand for party-wear, but warned wage rises, freight issues, and demands on shoppers’ available cash due to energy and mortgage rises could impact on sales.
Shares in the FTSE 100 business were briefly down 2.5 per on Thursday morning at £78.50.
Despite that, Next said it expects pre-tax profits for the year to be £822 million – almost 10 per cent up on two years ago, pre-Covid – rising to £860 million next year.
Russ Mould, investment director at stockbroker AJ Bell, said Next’s progress over the past year had been good given a fragile economic backdrop.
He said: “In particular, the retailer has enjoyed decent sales growth from the online channel, helped by more people buying third party clothes through its platform.
“Historically, an individual might have gone into a shop looking to buy a coat.
“If they couldn’t find what they wanted, the person would go to three or four other shops to check availability. That’s always been a hassle.
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“Next is now offering the ability to shop across multiple brands through a single place online, thereby making it a lot more convenient for the shopper, even to the point where they don’t even have to log into multiple websites to compare products.
“This is a win/win situation for everyone involved. Next has more customers using its website, it earns money either by selling its own products or from commission and service fees for third party products, and the customer experience is greatly improved.
“Discounts are the enemy of retail, and Next is doing a good job at shifting a lot more product at full price.
“That’s beneficial to its profit margins and shows that the consumer is prepared to pay up if they think the product is worth it.
“More recently, Next looks to have benefited from more people buying suits as they returned to the office, and more dresses and smart clothes for the return of socialising.
“However, the tail end of 2021 would have been negatively affected by Omicron putting people off mixing in public.
“Looking ahead, 2022 is shaping up to be a more challenging year. Household bills are going up thanks to soaring energy prices and higher interest rates, and the forthcoming National Insurance hike will also leave less money in people’s pockets.
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“Those fortunate enough to have saved some cash during the various pandemic lockdowns may still have some of this money left to act as a buffer for the higher cost of living.
“However, there is still a real risk that a lot of people are going to look hard at their finances and scale back on spending, particularly if the cost of goods in the shops is also going up.
“Next is wise to recognise these challenges and has set fairly low expectations as a result.”
Joshua Raymond, director at financial brokerage XTB, said: “Thanks to a 20 per cent jump in sales over a strong Christmas trading season, Next now forecasts its highest ever underlying profit with £822 million for this full year and £860 million for next year.
“Whilst this is an earnings beat, it's also worth cautioning due to the fact Next predicts prices will rise 6 per cent to compensate for higher freight costs.
“Given much of the brand’s revival has come from adult and occasion wear sales, the challenge it will face is whether demand remains healthy in the face of rising prices.
“Certainly despite supply and delivery shortages, demand remained strong over the holiday season.”
Next chief executive Simon Wolfson told PA News that rising inflation in the wider economy could hit consumer spending if Britons were forced to prioritise spending on food, fuel and heating their homes.
He said: “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.”
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