Difficult trading conditions on the high street as inflation exceeds earnings growth will be highlighted this week as fashion retailer Next unveils a slide in annual profits.
Next, which along with the likes of Marks & Spencer and Primark is a bellwether for the sector, is the first non-food retail giant out of the blocks with yearly results amid concerns that another Bank of England interest rate rise is in the pipeline for spring.
That would be seen as putting further pressure on household budgets and the prospects for retailers.
The City consensus is for Next’s chief executive Lord Wolfson to unveil an 8 per cent fall in earnings to £725 million, further dampening sentiment in a sector that has had a torrid start to 2018.
Toys R Us and electronics retailer Maplin have collapsed into administration, and profit warnings have been made by Debenhams, Mothercare and Carpetright (the second earnings alert at the floorings specialist since Christmas).
Next has been caught up in the high street malaise, but the chain posted a surprise rise in sales over the festive period and upgraded its profit forecast. It said full-price group sales, including Next Directory, in the 54 days to Christmas Eve rose 1.5 per cent, ahead of expectations,
It attributed part of the rise to much colder weather in late December. However, sales at the shops fell 6 per cent.
Even so, Next upped its full-year profit guidance by £8m to £725m, although the figure is still significantly shy of last year’s £790.2m.
George Salmon, equity analyst at Hargreaves Lansdown, said: “Next’s Christmas trading update showed high street sales continuing to suffer.
“That’s a trend that looks set to continue, but the outlook for next year has improved.”
Salmon added: “Next expects sales growth to firm up as online continues to deliver good results. Meanwhile, cost inflation is expected to ease, and then disappear, over the course of 2018.
“All that bodes well – higher sales and higher margins mean doubly higher profits in the longer term.
“However, [physical] retail still accounts for a huge slice of sales, and with conditions remaining tough, it’s likely to be far from plain sailing.”
Wolfson has previously said that Next will look to cut costs by renegotiating rents with landlords and controlling wages and man hours.
Meanwhile, firms including Jamie’s Italian, burger chain Byron and Prezzo have shut hundreds of stores amid tough trading.