Next cuts full-year outlook as pound slumps
By Abigail Townsend
Date: Thursday 29 Sep 2022
(Sharecast News) - Next cut sales and profits forecasts on Thursday, on the back of a weakening economic outlook and the recent turmoil in currency markets.
The fashion and homewares retailer said it had enjoyed a strong first half, with increases in both profits and sales.
But since then trading had been below expectations, and while sales improved in September, it warned that cost of living pressures were "set to rise in the coming months".
In particular, Next noted: "The devaluation of the pound looks set to prolong inflation, even once factory gates prices ease. It looks like we may be set to have two cost of living crises: this year a supply side-led squeeze, next year a currency-led price hike as devaluation takes effect."
Next said the government could and should help the UK through the cost of living crisis. But addressing last week's controversial mini-budget, which saw the government announce £45bn of tax cuts, funded by borrowing, it warned: "Borrow and spend remedies can ultimately only treat the symptoms of inflation; they are not the cure.
"And there is a balance here, as we are already seeing: when a government borrows too much their currency will devalue and stoke inflation next year."
Next now expects full-price second-half sales to be down 1.5% on the previous year, compared to earlier guidance for growth of 1%, while full-year profits forecasts have been trimmed to £840m from £860m.
In the six months to July end, full-price brand sales rose 12.4%, with total trading sales ahead 13% at £2.4bn. Pre-tax profits jumped nearly 16% to £400.6m.
The retailer said: "We had a good first half, with overall sales ahead of expectations, driven by over-performance in our retail sales and strong performance from the formal parts of our clothing ranges."
Shares in the blue chip were trading 9% lower by 1115 BST, at 4,829.53p, on another turbulent day for markets.
Russ Mould, investment director at AJ Bell, 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.
"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 seem to be changing by the hour."
Charlie Williams, equity research assistant at Hargreaves Lansdown, said: "It doesn't come as a massive surprise to see Next issue a second profit warning this year, but investors [have] still reacted badly as hopes of a merry Christmas shopping season start to slip away.
"The group's seen inventory grow faster than it can get it out of the door, so any disappointment in the upcoming months could quickly see more clearance sales feeding into lower margins and profits. Soaring inflation and a cost of living crisis exaggerated by a weakening pound make the scenario look all too likely right now."
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