Next profits better than expected but ‘difficult’ year ahead

Next posted a better-than-expected jump in full-year profit on Wednesday as it said selling price inflation was set to be more benign than previously thought, but warned the year ahead would be “difficult” and that it continues to expect a decline in profit.

In the year to January 2023, pre-tax profit rose 5.7% to £870.4m, coming in ahead of company guidance of £860m. Total trading sales were up 8.4% to £5.1bn, with full prices sales ahead of 6.9%.

Retail sales rose 30% during the year to £1.9bn, while online sales nudged 2% lower to £3bn. Finance sales were 10% higher on the year at £274.4m.

The company said full price sales in January were flat and in line with its guidance. However, the participation of higher margin retail sales was greater than expected, adding £5m to profit.

Next it reiterated its guidance for the current financial year, for sales to be down 1.5% on the year and for pre-tax profit to fall to £795m.

The retailer also said that selling price inflation is forecast to be more benign than previously thought.

“In January’s trading statement we set out guidance for the expected increase in our selling prices for the year ahead,” it said. “We now believe that price increases in the second half will be materially lower than we initially feared.”

Next said two factors have served to reduce the pressure on pricing. The first is a significant reduction in the costs of container freight as shipping capacities return to normal. The second is improving factory gate prices, resulting from the increased availability of factory capacity.

Like-for-like price inflation in Spring/Summer is expected to be 7% and 3% for Autumn/Winter, down from the previous guidance of 8% and 6% respectively.

Next also warned on Wednesday that the year ahead was set to be “challenging”, noting that “the combination of inflation in our cost base and top line sales which are likely to edge backwards is uncomfortable”.

Chairman Michael Roney said: “We have prepared (and budgeted) for a difficult year. We are very clear on our priorities. If we continue to improve our product ranges, relentlessly manage our costs and upgrade our customer service, whilst also developing new business opportunities, we can lay the foundations for an exceptionally strong business and still deliver healthy profits, cash flow and dividends.”

At 0825 BST, the shares were down 6% at 6,322p.

Russ Mold, investment director at AJ Bellsaid: “Trading has been fairly resilient over the past 12 months but the company is preparing for a tough year ahead. There is no upgrade to earnings guidance and there is even comment on the question people are starting to ask – is Next now ex -growth?It’s no wonder the share price has taken a tumble.

“Next is in an odd situation. While lauded as a best-in-class retailer, there is no denying that growth has slowed over the past eight years. That period also coincides with a concerted push to broaden its income streams, developing its website as a hub for third parties to sell their brands while making its stores more relevant via click and collect services.Next’s decision not to abandon its high street presence was a wise one, particularly as physical stores are coming back into fashion.

“One could argue that Next has been laying the foundations for future growth, and that the adjusting period also included a big distraction in the form of a pandemic so it can be an excuse for not shooting the lights out with sales and profit progression. The key question now is whether its new strategy will yield the kind of returns enjoyed in the past.”

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