Next hikes profit forecast amid store 'renaissance' but outlook clouded by inflation: reaction

High street fashion giant Next has further hiked its annual profit outlook after its full-price sales were given a lift by the sultry summer weather.

The chain’s second-quarter sales performance exceeded expectations by £50 million, and the group has lifted its full-year profit guidance by £10m to £860m.

Total sales jumped 5 per cent in the three months to July 30 compared to last year, and leapt 23.8 per cent higher versus the same period in 2019 before the pandemic struck.

In-store retail has had “something of a renaissance” while growth in online shopping has cooled, Next said in its trading update.

It told investors: “During Q2, retail’s full price sales performance has been much better than we had anticipated.

“We had planned that our stores would be down against 2019, following the long run of negative like-for-like retail sales we have experienced since 2016.

“We suspect that the apparent improvement in the fortunes of our stores is, to some extent, down to the number of competing stores that have closed in the last three years.”

The post-pandemic resurgence in retail also boosted sales of formal wear as demand for social events spiked, while lockdown winners like home and sportswear dwindled.

An example of the Next summer 2022 fashion line-up. Picture: Next plc

But Next expects the unusually warm weather to subside and the impact of soaring inflation on consumer spending to worsen, dampening sales in the second half of the year.

Richard Hunter, head of markets at investment platform Interactive Investor, said: “Two things are close to becoming expected from Next updates - an upgrade to profit forecasts, along with a cautionary outlook to temper overexuberance.

“For the latest quarter, full price sales were up by 5 per cent, equating to an additional £50m ahead of previous guidance, leading Next to upgrade its profit expectations for the full year by £10m to £860m, which itself would represent an increase of 4.5 per cent versus the previous year.

“As noted in the last update, the pendulum has swung away from online growth, which has temporarily stalled, to a return to traditional store shopping. The group does not necessarily expect this swing to persist, noting that compared to pre-pandemic levels, the trend remains intact and comparisons with this time last year are skewed by a return to normality after the removal of lockdowns.”

Walid Koudmani, chief market analyst at financial brokerage XTB, noted: “This is a fascinating earnings report because from the outset, it might herald the return of the high street.

“However this tells the story more about comparatives as online sales dropped compared to lockdown periods in the previous year whilst retail sales could only have grown after lockdown induced store closures.

“All in all, this is a pretty good set of results for the retailer but shareholders will turn their focus firmly to the rest of the year as the eye of a cost of living crisis storm moves deeper into the retail sector.

“This is why the retailer doesn’t expect Q2 sales growth to maintain its pace with inflation headwinds starting to bite consumer activity.”