Next warns of cost price increases in 2017 as second quarter sales edge up

The fashion giant pointed out that, in the medium term, the devaluation of the pound following the outcome of the EU referendum is likely to increase how much it pays for goods by up to 5%.

It said: “Although it is very early in the buying cycle, we currently estimate that cost prices in 2017/18 will rise by less than 5% on like-for-like products.”

However, Next said: “There will be no effect on the year to January 2017 as we have fully hedged all our currency exposure.”

It added that, apart from in the immediate aftermath of the vote, it had seen “no clear evidence of any appreciable effect on consumer behaviour.”

The overall sales rise of 1.8% comprised a 0.7% drop in retail and a 5.4% increase in directory sales. 

However full price sales only edged up just 0.3%, with the same trend evident: a drop in retail of 3.3% and a 5.7% increase in directory sales. Of that 0.3%, 1.5% was generated by new space.

The figures were an improvement on its first quarter, when it reported an uncharacteristic dip in total sales of 0.2% and full price sales slipped 0.9%.

Its half-year full price sales were also down 0.3% on the previous year, with retail full price sales down 4% and directory full price sales up 4.9%.

Next said: “Trading remains extremely volatile and on a week-by-week basis is highly dependent on the weather.

“This volatility is indicative of the underlying weakness of consumer demand for clothing, which we believe we began to experience in October 2015.”

The retailer expects the consumer environment to remain “tough” for the rest of the year and points out that quarter three will be “particularly challenging” because it was the retailer’s strongest quarter last year, with sales up 6%.

Next said its end-of-season sale “has gone well and clearance rates have been slightly ahead of expectations” because it went in with “significantly more stock” than last year.