Next upgraded its profit forecasts for the year, as it says it was boosted by good weather and customers receiving inflation-based pay rises.
Sales were up 9.3% year-on-year over the last seven weeks. That marks a rebound after a disappointing update in May, when it predicted a decline in first-quarter sales.
Richard Hunter, Head of Markets at interactive investor, said: “Much as Next underwhelmed the market with its first quarter trading update in May, it has pleasantly surprised investors with a further unscheduled release which notes that trading in the last seven weeks has been materially better than previously anticipated.
The upgrade, Next said, was for two reasons, the first being the weather.
“The onset of warmer weather has made a significant difference to our performance, particularly coming after a wet and cold April,” Next said.
The second reason was that the retailer said a large number of its customers received inflation-based pay rises, which boosted their disposable income.
“In an inflationary environment, annual salary increases deliver a significant uplift in real household income at the time they are awarded,” it said.
“For example, during April annual inflation was running at 8.7% and monthly inflation was 1.2%; if an individual received a pay rise of 5.0%, then their real income would have risen by 3.8% in that month.
“We do not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards.”
As a result, Next upped its full-year profit guidance from £795 million to £835 million.
“If recent pay rises and the sudden change in weather have indeed contributed to the current over-performance, then it is reasonable to expect that the effect will diminish over time because ongoing inflation will slowly erode the positive effect of annual pay increases,” the retailer said.
“This is why we are not anticipating the current performance to continue at the same level going forward, albeit we have moderately improved our guidance for the rest of the year.”
Shares jumped by 4..7% to 6,740p.
