Shares in Next Plc were down more than seven per cent on Thursday on news that the business was anticipating tough months ahead.
The high street giant – which has a reputation for its cautious forecasting and just as cautious sensible forward planning – said despite a good start to 2022 it was cutting its pre-tax profit estimates for the full year by £20 million to £840 million.
In its first half results, the Leicestershire-headquartered retailer said full price sales and pre-tax profits were up more than 20 per cent on the same period pre-Covid in 2019.
However it warned that “with so many variables at play, predicting near-term sales trends is unusually difficult”.
Russ Mould, investment director at online stockbroker AJ Bell, said these were uncertain times for the UK high street, but Next was usually one of the best players at managing difficult situations.
He said: “If Next is struggling, you can be sure the retail sector is in a real fix.
“Among the most consistent of retailers, the company has an excellent track record and is a highly transparent communicator with the market.
“The message it has to deliver is a worrying one. True, Next does have a habit of managing expectations downward, to give it a lower bar to clear.
“First-half results were strong and while the start to the current financial year was weak in August there was a notable pick-up in September. But there’s no disguising that behind the cuts to guidance lies deep uncertainty about the consumer backdrop.
“Given the outlook for UK interest rates, the moving parts Next has to consider seems to be changing by the hour and it’s not surprising the business is finding it very difficult to predict the trajectory of trading.
“Whatever is coming Next’s way the versatility of the business, which has allowed it to benefit from the recent preference for shopping in-store as opposed to online, a strong balance sheet, experienced management and its almost unmatched retail skills leave it well placed to endure.
“Next may find it comes out of the current turmoil in a stronger market position as rivals are either weakened or fall by the wayside entirely.”
Julie Palmer, a regional managing partner at corporate restructuring specialist Begbies Traynor, said Next boss Lord Wolfson was known for his “wise commentary” when delivering the clothing and homeware giant’s results and the latest update was no different.
She said: “He warns that even though Next’s performance in the first half was better than expected, the UK’s economic problems will cause a consumer squeeze and has cut profit forecasts for the back end of the year.
“Lord Wolfson sees two cost of living crises: a near-term supply side-led squeeze which will hit over the key festive period as consumer spending falls, then next year a currency-led one as the weak pound make imports more expensive.
“There’s little Next can do about the first crisis apart from focus on efficiency and the most profitable parts of the business.
“Even though the company has currency hedges until next summer, in the longer term, with most of Next’s foreign suppliers pricing their products in US dollars meaning the weak pound makes them more costly, Lord Wolfson is looking to adapt the supply chain to get the best value.
“What’s really interesting is Conservative peer Lord Wolfson’s comments on the wider economy. The prominent Brexiteer warns the Government that its current borrow and spend economic policy is “not a cure” for inflation, and that it “only treats the symptoms”.
“Instead he wants to a see a “radical overhaul” of the UK’s planning laws, “intelligent relaxation” of migration controls, energy market reforms and the liberalisation of trade tariffs, as well cutting major projects which add what he sees as little value, singling out HS2 as one.”
