By James Davey
LONDON (Reuters) – British clothing retailer Next forecast lower profit in its 2023-24 year, reflecting uncertainty over whether consumers would keep spending during a recession and as the group’s costs rise.
Next trades from about 500 stores and online and is often considered a gauge of how British consumers are faring. It is the first major UK apparel retailer to report on Christmas trading.
The group raised its pretax profit forecast for the current year which ends this month to 860 million pounds ($1 billion) from a forecast of 840 million pounds previously after full price sales rose a better than expected 4.8% in the nine weeks to Dec. 30.
But it said it was cautious in its outlook for the 2023-24 year, forecasting full price sales down 1.5% and pretax profit of 795 million pounds, down 7.6% on 2022-23.
Prior to the update analysts were on average forecasting pretax profit of 783 million pounds for 2023-24, according to Refinitiv data.
Next said consumer demand in 2023 was likely to be dampened by inflation, particularly in energy, by rising mortgage costs as consumers’ fixed interest rate deals expire, and by price rises in its own products.
“On a more positive note, we expect employment to remain strong so are not anticipating a collapse in demand or any increase in bad debt over and above our current provisions,” it said.
Next said it expected cost price inflation on like-for-like goods to peak at around 8% in the Spring/Summer season, falling to no more than 6% in the second half.
It said selling prices would be broadly in line with the increase in cost price inflation.
Next also highlighted increases in UK operating costs, mainly as a result of wage inflation and energy costs.
It said fourth quarter store sales were up 12.5% while online sales rose 0.2%, with both channels exceeding its expectations. It said it saw a dramatic boost to sales when the weather turned cold in December.
The group has shown more resilience than most to the cost-of living crisis and is considered by analysts to be one of the best run retailers in Britain but its shares are still down 23% over the last year.
($1 = 0.8315 pounds)
(Reporting by James Davey; Editing by Kate Holton and Emelia Sithole-Matarise)
