Next downgrades profit guidance as Wolfson prepares for long-term instability

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Next has revised down its full-year profit and sales guidance despite a better-than-expected first half as Lord Wolfson prepares the business for an extended period of financial uncertainty.

Next Manchester

Next has downgraded full-year profit guidance to £840m from £860m

In its results for the half-year ending July 2022, the retailer said it had downgraded full-year profit guidance to £840m from £860m and revised its full-year sales target by 2% as boss Wolfson warily eyed the possibility of a double-pronged financial crisis in the UK stretching into next year.

Next said it was currently experiencing inflation of around 8% on products for its autumn and winter 2022 lines as it had predicted.

Wolfson agreed he may be being “pessimistic” in his outlook after Next produced a better-than-expected first half of the year – total group sales were up 12.3% to more than £2.3bn, while profit before tax was up 15.5% to £401m.

However, in the results Wolfson outlined that sales in August were below expectations, which meant he believed it sensible to moderate expectations for the second half of the year.

He said the current problem facing the UK and world economies was one of supply following restrictions during Covid-19, exacerbated by the war in Ukraine and increased energy costs.

Wolfson also warned that the weakening pound was likely to prolong inflation “even once factory gate prices ease”.

“It looks like we may be set to have two cost-of-living crises,” Wolfson added. “This year a supply-side-led squeeze, next year a currency-led price-hike as devaluation takes effect.”

When split into channels, Next’s online sales fell 5% in the first half to more than £1.4bn while the cost-of-living crisis saw in-store sales surge 63% to £880.5m. Sales on the Total Platform soared 234% to £59.1m.

In terms of profitability, Next’s online channel took a 32% hit, down to £220.9m. Overall operating profit for the business jumped 10.7% to £434.4m and profit after tax was up 13.4% to £328.5m.

“As inflation begins to bite, it seems inevitable that clothing and homeware growth will slow if not reverse, though employment and savings levels are both at healthy levels, which provides some comfort,” said Wolfson.

“It is too early to tell what impact government support will have, though it seems likely that the scale of the measures announced recently will serve to support spending in some way.”