Next warns of dented annual profits if warm weather continues

Next has warned that sales have been lower than expected during one of Britain’s warmest Septembers on record and that if similar weather continues throughout October it could be forced to reduce annual profit guidance.

In an unscheduled trading update, the fashion retailer said cooler weather in August caused several strong weeks of sales but that the effect was reversed in September. As a result, sales for the third quarter are up 6% compared with the company’s forecast of 10%.

Next predicted at its annual results on 11 September that pretax profit for the year ending in January would rise by as much as 17% to £815m. It has left the forecast unchanged but said it was likely to be lowered if the weather stayed mild.

The company said: “Our experience suggests that some lost sales are regained when the weather turns. However, if this unusually warm weather continues for the full duration of October then we are likely to lower our full-year profit guidance range of £775m to £815m.”

Next’s statement is the latest sign that fashion retailers are struggling to shift winter clothing with September temperatures more akin to those of summer. September has been the driest for more than 100 years.

Marks & Spencer, House of Fraser, Debenhams and New Look are all offering discounts early in their new season.

Next shares fell 4% to £65.80 while M&S was also dragged lower, falling 3.5% to 400p. Debenhams and the fashion brands Ted Baker and SuperGroup also fell.

Next’s strong August sales came partly at the expense of M&S, which suffered a 0.6 percentage-point decline in its share of the clothing market, according to Kantar Worldpanel figures reported in the Times. Next stood firm amid heavy pre-Christmas discounting by rivals such as M&S and Debenhams last year. M&S has resorted to promotions in recent weeks, offering 20% discounts despite promising it would cut back on any discounting.

Retail analyst Nick Bubb said: “Mighty Next has, out of the blue, warned today that because of ‘the recent spell of unseasonably warm weather’ sales are only running at plus 6% in Q3 to date. Next are probably being unnecessarily cautious, ahead of investor meetings this week, but the market is unlikely to take any chances.”

Next said it published the statement to the stock exchange because it was about to sit down with big shareholders who will ask about trading given the heavy discounting on the high street. Informing the market would allow it to have open conversations in those meetings, it said.