Solid Xmas for Next but profits given a trim

The group said full-price sales rose 1.5 per cent between 28 October and 29 December. Picture: Next plc
The group said full-price sales rose 1.5 per cent between 28 October and 29 December. Picture: Next plc
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High street stalwart Next has trimmed its profit forecast despite revealing solid festive trading.

Releasing an eagerly awaited trading update, the group said full-price sales rose 1.5 per cent between 28 October and 29 December – a result that was in line with expectations.

In a continuation of recent trends at the fashion chain, high street store sales fell 9.2 per cent over the crucial Christmas trading period, though this was offset by a 15.2 per cent surge online.

However, ther group downgraded its profit forecast to £723 million for the year to January, from the £727m previously expected, and said the coming financial year will remain under pressure.

It blamed the reduced profit outlook for the current year on higher sales of seasonal products, such as personalised gifts and beauty products, which have a lower profit margin than its clothing ranges. Next also warned that it faced higher operational costs on online sales.

For the year to January 2020, the firm predicted profits will dip 1 per cent to £715m while full-price sales growth will ease back to 1.7 per cent from the 3.2 per cent projected for 2018-19.

Chief executive Lord Simon Wolfson said November was hit hard by unusually mild weather, but that spending recovered in December.

Wolfson – a prominent supporter of Brexit – said the fears over the impact of current economic uncertainty on consumers were overdone.

“People are maybe a little bit more cautious, given the uncertainties around Brexit,” he said. “But I think that’s as strong as you can put it.”

Reaction from City analysts to the latest numbers was generally positive.

Richard Hunter, head of markets at interactive investor, said: “Next remains a well-managed company which understands its own business as well as the cut-throat sector in which it operates. Careful management of its finances continues to bear fruit against this backdrop, and the outlook for the forthcoming trading year anticipates similar themes, with an estimated 8.5 per cent decline for retail sales but a hike of 11 per cent for online.”

Shore Capital analyst Greg Lawless noted: “Consumer sentiment is at its lowest level for five years over Brexit fatigue.

“Like the company, we believe that we need to get through calendar Q1 [quarter one] and understand the political and economic backdrop of any potential Brexit deal.

“Given the macro economic environment and difficult clothing market through the autumn, management should be applauded for such a credible trading update.”

On Wednesday, John Lewis noted that a surge in shoppers looking for last-minute gifts had helped lift sales over the festive period as the retailer gave the first glimpse of how trading fared over Christmas.

In the week to 29 December, sales at the department store chain were up 4.5 per cent.