Next to increase prices to offset wage rises, lifts guidance again
By Frank Prenesti
Date: Tuesday 07 Jan 2025
(Sharecast News) - UK clothing retailer Next said it would increase prices to offset higher wage and tax costs along with anticipated slower growth as it lifted full-year guidance after better-than-expected December sales.
The company on Tuesday said like-for-like prices would rise by 1% in response to the £73m in extra wage and national insurance measures introduced in the last UK Budget. Around £13m of the £67m in higher wages could be offset through raising prices.
"Fortunately, we are seeing 0% inflation in factory gate prices. So although we are increasing our bought-in gross margins, we still expect our prices to rise by less than the Bank of England's target for inflation of 2%," Next added.
"Consumers have continued to slightly shift their purchasing preferences, buying fewer entry-level products and more items at the middle and top end of our price architecture. To be clear, consumers are not necessarily spending more overall, but buying fewer, marginally more expensive items."
Full-year guidance for the 12 months to January was lifted by £5m to £1.01bn after underlying full-price sales rose by 5.7% against expectations of a 3.5% increase in the nine weeks to December 28. For 2026, Next anticipates full-price sales growth of 3.5% and profit before tax of £1.046bn, up 3.6%.
Online sales, including Next-branded items and its Label selection of other brands, rose 6.1%, while overseas online sales surged by more than a third. However UK store sales were down 2.1%.
"Growth in the UK was in line with the performance for the rest of the year, but online sales growth increased at the expense of growth in our retail stores. Secondly, and unexpectedly, our sales growth overseas accelerated in the run up to the holiday period," Next said.
"We anticipate that growth overseas will moderate from the 24% we have achieved this year to 14% in the year ahead. In the current year, overseas sales benefited from an +85% step change in marketing expenditure, funded by some price increases."
Aarin Chiekrie, equity analyst, Hargreaves Lansdown said end-of-season sales had helped clear surplus stock, with inventory piles "sitting at a comfortable level heading into the new year".
He also called Next's 2026 profit forecast "a little conservative, especially given Next's track record of outperforming its own guidance".
"But overseas growth is forecast to ease, and wage inflation and National Insurance increases are set to bring ... of additional costs to cover, so erring on the side of caution is a smart move, and leaves potential for positive surprises".
Reporting by Frank Prenesti for Sharecast.com
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