UK fashion retail giant Next has raised its full-year profit forecast for the third time in just four months, as the company reported stronger than anticipated full-price sales growth amid easing cost pressures.
The clothing retailer said on Thursday that it now expects pre-tax profits for the full 2022-23 financial year to reach £875 million, a significant upgrade from its previous projection of £845 million issued earlier this summer.
The latest revision in guidance follows a similar profit upgrade back in June, when Next cited a combination of unusually warm weather and robust growth in wage inflation as key factors driving higher than forecast sales of full-price merchandise. In its release Thursday, Next noted that the exceptionally warm temperatures in May and June were likely a key driver boosting summer clothing demand during the first half of 2022. As such, the company cautioned that the beneficial impact of this unseasonably hot early summer weather would need to be factored in when projecting sales performance for next year.
The upgraded profit view marks a pronounced shift in tone for the retailer compared to March, when Next had warned investors to brace for potential sales headwinds stemming from mounting cost of living pressures on consumers, as well as from input cost inflation further pressuring the company’s expenses. Thus far, both impacts have proven less severe than initially feared.
“We underestimated the support nominal wage increases, and a robust employment market, would give to our top line,” commented Lord Simon Wolfson, Next’s Chief Executive and the longest-serving boss of any FTSE 100 company. He added that the group had been “overly cautious about the prospects for sales in the current year.”
Indeed, UK wages climbed at the fastest annual pace on record in the three months to July, providing a boost to discretionary spending power for some households.
Shares in Next have climbed around 20% year-to-date, soundly outpacing the 2% gain for the broader FTSE 100 index. The stock was up 2% in Thursday morning trading following the latest profit upgrade.
Specifically, Next reported that its full-price sales rose 3.2% in the first half of 2022, well above its forecast for a 3% decline. The company said pre-tax profit for the six months ending July climbed 5% compared to last year, reaching £420 million.
This is in stark contrast to the guidance Next provided back in March with its annual results, when it predicted full-price sales would fall 1.5% for the full 2022 year, while pre-tax profits would come in 8.7% lower than 2021 at £795 million.
Looking ahead, Next remains focused on expanding internationally over the next few years, commenting Thursday that this strategic push had taken a “big step forward” in recent months. The retailer’s overseas sales were up 18% in the first half versus the same period last year.
