Next raises profit outlook again as sales and cost pressures prove better than expected

Next, the fashion to homewares retailer, has raised its annual profit expectations for the third time in four months after sales and costs came in better than expected during the first half of its financial year.

The high street bellwether reported a 5.4% lift in total group sales during the six months to the end of July, with full price sales up 3.2% compared to the same period last year.

It said profit before tax was up 4.8% to £420m and, as a result, it now expected a figure for the 12 months of £875m.

That was up from the £845m – it had only recently guided and represented a 0.5% increase on the previous figure achieved.

At the same time, JD Sports Fashion – another company to have outperformed in the tough economy in recent times – said underlying sales growth in its first half was up 12%.

It maintained its profit guidance for the year as a whole of just above £1bn – a rise of 5%.

The companies reported on their progress at a time when shoppers’ budgets remain hugely strained by the evolving cost of living crisis – exacerbated by Bank of England efforts to bring down inflation due to steep rises in borrowing costs.

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While the latest data has shown average wages rising at record levels, the pace of price rises for things like food and drink, while easing, remain well above the overall rate of inflation at 13.6%.

The figures from the Office for National Statistics showed clothing and footwear price hikes running at a rate of 7% in the 12 months to August.

Wider retail sales data showed a tough July due to wet weather but an industry report earlier this month suggested the best month since February for non-food sales as summer sunshine returned.

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A trend in retailers’ forecasts has been an easing in cost pressures as the year has progressed, adding that it had managed to source products from new suppliers to help keep a lid on its prices.

Next said the shift was a factor behind its latest rise in profit expectations. It had initially expected a 3% decline in full prices sales due to the challenges facing the market.

But chief executive, Lord Wolfson, wrote on Thursday: “In reality, we were overly cautious about the prospects for sales in the current year.

“We underestimated the support nominal wage increases, and a robust employment market, would give to our top line.

“We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time.”

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