LONDON — British clothing retailer Next beat Christmas sales forecasts on Thursday and predicted a drop in profits for the coming financial year that was less than analysts had feared, easing some concerns about a darkening economic outlook.
Shares in the group jumped 7.2% in morning trading, as Next also said it expected British employment to remain strong so was not anticipating a collapse in consumer demand.
“If I look at the things that are of comfort, I think the strength of employment and employment opportunities in the UK is one of the things that is likely to moderate the effect of the fact that prices are rising faster than wages,” CEO Simon Wolfson told Reuters.
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.
Its performance boosted British retail stocks on Thursday on hopes that Christmas demand will be better-than-expected across the board.
Next 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.
It 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. Selling prices would be broadly in line with the increase in cost price inflation.
Next also highlighted rises in UK operating costs, mainly as a result of wage inflation and energy costs.
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 17% over the last year. ($1 = 0.8315 pounds) (Reporting by James Davey; Editing by Kate Holton and Emelia Sithole-Matarise)