Next warns price of clothes will climb by as much as 8%

NEXT, the UK's second-largest fashion retailer, yesterday warned that the price of clothes may have to rise by up to 8 per cent next year because of the soaring cost of cotton.

The warning came as the group released sales figures for its third quarter revealing a worsening performance in its high street shops. Like-for-like sales slid by 3.3 per cent, widening from a fall of 1.5 per cent during the first half.

But it said a strong showing at its online operation, Next Directory, and additional sales from new high street space "more than made up" for the retail disappointment.

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Directory sales rose 7.9 per cent, helping overall sales lift 2.2 per cent in the three months to 30 October, as the group confirmed expectations for full-year profits of between 535 million and 560m.

Looking to next year, chief executive Simon Wolfson said: "We're planning very conservatively for 2011 but not for a disaster."

The fashion and homewares stalwart said price hikes early next year were likely to be at the top end of its previous 5 per cent to 8 per cent forecast after the cost of cotton continued to soar.

"The price of cotton seems to be moving very rapidly and somewhat irrationally and it's very difficult to make a call," said Wolfson, who has just returned from a visit to factories in Bangladesh and India.

The firm added that there could be further price rises if the speculative bubble in cotton prices carries on.

Next, which is second only to Marks & Spencer for UK fashion sales according to industry data, first cautioned over prices in August when it said the cotton rally and impending VAT rise to 20 per cent was likely to lead to more expensive clothing for customers.

Fashion retailers have raised the alarm over prices in recent months, including budget clothing giant Primark. Cotton prices are running at record highs as global supplies have tightened after the devastating floods in Pakistan - one of the world's largest cotton growers - and wet weather in China, which is another major exporter.

Matthew McEachran, retail analyst at Singer Capital Markets, said the update showed the company was "performing reasonably well" but that "sales were not quite as good as hoped".

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Andrew Wade at Numis Securities cut his recommendation on the retailer's shares from "buy" to "hold".

He said: "Sales comparatives get considerably tougher through the remainder of the year, a fact Next alluded to, with retail like-for-likes in the region of 4 per cent to 5 per cent through Christmas last year."

Shares in Next fell by 49p, or 2.2 per cent, to 2,180p.