Next trims sales and profit guidance amid cost-of-living spending squeeze: reaction

Fashion giant Next said it witnessed weak sales in August as the cost of living crisis began to bite and is now set to miss its sales and profit targets, while winter clothing prices are on the rise.

The high street stalwart told investors that August was “below our expectations” and cost-of-living pressures on customers are expected to rise in the coming months, ahead of the key Christmas trading period.

It said profits are now expected to be around £840 million for the current financial year, downgrading a previous projection of £860m.

Next added that it “seems inevitable” that growth in the clothing and homeware sector “will slow if not reverse” as inflation starts to bite.

It also revealed that prices across its autumn and winter range have been increased by an average of 8 per cent as it passes on some of the impact of higher costs to consumers.

Finance director Amanda James said it was “too early” to say if these increases are putting off customers.

“These were fed through from August and if we had seen the weakness that month continue to September maybe you could link the performance to prices,” she said. “But I think the improvement in September proves it is not simply that and we saw a strong performance in the first half of the year, where we had implemented 4 per cent price increases.”

The high street bellwether said it has seen some costs, such as freight and logistics, ease in recent months. However, it added that weakness in the pound could persist into next year and would “serve to inflate selling prices, particularly in the second half of the year”.

Next has raised prices on autumn and winter clothing lines.

Next said it believes weakness over August was likely to have been related to the heatwave following its summer sale, more customers taking holidays abroad and the “waning of consumer confidence as increasing energy and other costs begin to dampen demand for discretionary spending”.

It stressed that it saw a better performance in September and may improve further as UK government support for households kicks in.

The update came as the group revealed that full-price sales increased by 12.4 per cent over the six months to July, compared with the same period last year. Pre-tax profits rose by 15.5 per cent to £400.6m for the half-year.

Richard Hunter, head of markets at investment platform Interactive Investor, said: “A profits downgrade from Next is a rare and unwelcome development, even if it is largely understandable in the circumstances.

“While the news may be disappointing at a headline level, a look under the bonnet reveals an engine which, for the most part, is still purring,” he added.

Eleonora Dani, an analyst at brokerage firm Shore Capital, noted: “The outlook statement highlights that predicting near-term sales trends is unusually difficult with so many variables at play. Even though the UK government stimulus measures are yet to take full effect and the company expects to see some benefits, Next worries about the cost of living squeeze.”