In the six months to July 2022, Next’s pre-tax profits grew 16% to £401 million compared to the same period in 2021. However the retailer has cut its forecast for the full year from £860 million to £840 million. The retailer also now expects its full year sales in its second half of its financial year to fall 1.5%.
Next also highlighted its performance in August had been below expectations with trade down 3% compared to the same period in 2021. The retailer said: “Restrictions on the production of raw materials and manufacturing of goods during Covid, along with the disruption of international freight routes, reduced supply which inevitably pushed up prices. These problems, which might have been short lived, were compounded by the war in Ukraine and the exceptional increases in the cost of energy”.
Mintel comment:
“Next’s sombre financial update comes at a time of great economic uncertainty and as a bellwether for the UK retail market its cut to full year sales and profit highlight the difficulties the sector is facing. Next has warned of a slowdown in future purchasing behaviour and has reduced its forecasts for full price sales in the second half of 2022 from +1% to -1.5% versus last year. It has already seen changing consumer behaviour, with August trading impacted by waning consumer confidence in the face of the rising cost of living.
Fashion retailers are facing ongoing supply issues that have pushed up prices and these have been compounded by the war in Ukraine and the increases in the cost of energy. The devaluation of the pound will mean that even once factory gate prices ease, inflation in cost prices for fashion retailers will continue in 2023 and Next points out that the greatest pressure on selling prices will come in Autumn and Winter of 2023.
Next is in a relatively resilient position and despite preparing for the worst, its focus on better operating efficiencies, digital investment, improving online delivery services and increasing the profitability of its fastest growing areas of the business such as Label and overseas, will help it to weather the storm and could give it a competitive advantage. However, the update gives an overall picture of the inflationary pressures facing retailers at a time when consumers are also set to reduce their spending on fashion, highlighting the challenges that the fashion market faces for the rest of 2022 and into 2023.”
