Next has raised its full-year profit expectations for the third time in four months and signalled that prices could start to fall next spring for the first time in three years.
The fashion and homewares retailer upped its annual profit guidance by £30m to £875m as it said better ranges, the sunny spring and pay rises for many of its customers had helped lift sales.
Full-price sales rose by 3.2% in the six months to July – a far better performance than an expected 3% drop in sales.
The retailer said its cost inflation was easing and prices could fall next year.
In the spring it said cost prices – the amount the company pays for goods – could fall by up to 1%, although it did not rule out an increase of up to 0.5%.
Inflation will also ease this autumn, with Next now expecting full-year cost prices to rise by 2%, compared with 3% pencilled in previously. Cost price rises have led to retail price increases since spring 2021.
Simon Wolfson, the chief executive of Next, said if costs did come down as expected the business would “continue to do what we have done for the last 15 to 20 years and reduce prices [for shoppers]”.
He said that in the wider clothing market he expected to see a “disappearance of price inflation” but this would not mean prices would go back to the level seen several years ago.
Next benefited from the sunny weather in May and June – which it said had bolstered sales of summer clothing “at a critical time” – as well as from improving its online deliveries.
Wolfson said the group had previously underestimated the positive impact customer pay rises would have on its sales. However, he warned it was possible that the relatively strong consumer market could be hit next year amid fears that more people will be out of work.
Next’s profits were helped in the half year by lower than expected inflation on costs, as negotiations with suppliers had been eased by lower global demand for commodities, freight services and production.
The company said that introducing new designs more frequently and adding more items at the middle and top end of its price range had helped it appeal to a broader audience.
“Fashion has always been about newness but it appears to us that trends are moving faster. Customers are willing to adopt new looks more rapidly than they have been for some time,” the company said in an update to the City.
In the first half of the year, total sales at Next rose 5.4% to £2.5bn, with a 5% rise in online sales and 0.5% rise in stores. There was also a 28% increase in sales via its total platform scheme, which includes brands such as Gap, Victoria’s Secret and Made.com. Profits rose 4.8% to £420m.
Next has snapped up a series of ailing brands, including Joules and Made.com, in recent years, adding them to the portfolio of brands it sells online and in some stores.
Wolfson said Next would continue to look at further acquisitions but had strict criteria about what it would invest in, including requiring a strong brand, good management and the ability to add value by integrating the business into Next’s delivery, IT and marketing systems.
He said Next was conscious of the risks of becoming a “corporate blob” in which brands began to look the same, and so the group was determined to keep design, suppliers and offices separate.
“The history of retail is littered with failed conglomerates – Storehouse, Sears, Arcadia, British Shoe Corporation, Mosaic, the list goes on,” Wolfson said in his presentation to analysts.
He said even successful groups such as Zara’s owner Inditex and Christian Dior and Fendi owner LVMH could reach a point where the individual brands were worth more than the group.
His added that his aim was to “retain the best of small-company common sense, speed and decision-making while harnessing the best of big-company infrastructure and resources”.
