Fashion giant Next cuts its profit and sales targets for the year

The high street retailer told investors on Thursday that August was “below our expectations” and cost-of-living pressures on customers are expected to “rise” in the coming months, ahead of the key Christmas period.

“Sales in September have improved, and we may see benefits from recent Government measures,” the company added.

It said profits are now expected to be around £840 million for the current financial year, downgrading a previous projection of £860 million.

In a statement, Next said: “We had a good first half, with overall sales ahead of expectations, driven by the over-performance of our retail stores and a strong performance from the formal parts of our clothing ranges.

“Sales during August were below our expectations and, despite improving sales in September, we think it is sensible to moderate our expectations for sales and profit in the second half.

“It is important to stress that, with so many variables at play, predicting near-term sales trends is unusually difficult.

“All the more so with recent Government stimulus measures yet to take full effect.”

Richard Hunter, Head of Markets at interactive investor, commented: “A profits downgrade from Next is a rare and unwelcome development, even if it is largely understandable in the circumstances.

"While the news may be disappointing at a headline level, a look under the bonnet reveals an engine which, for the most part, is still purring.

Mr Hunter added: “Next is painfully aware of the challenges which it is facing as a group, as well as the retail sector and the broader economy in general.

"The downgrade is partly due to the weakness of trading in August, which the company is largely attributing to the heatwave and the fact that the consumer was on foreign holidays as the post-pandemic pent-up demand began to unwind.

"Even so, the wider concerns of the cost of living crisis, an inflationary environment which is being tackled by rising interest rates (and which looks likely to worsen next year given the weakness of sterling, especially against the US dollar) and a more cost-conscious consumer, are all headwinds to be faced.”

Set against its own traditional caution, the group nonetheless sees glimmers of hope in the not too distant future, Mr Hunter added.

He said: “It points to the fact that household savings, which were boosted during the period of lockdown, remain at elevated levels while a near full employment market also affords some leeway for consumers to continue to earn.

"While the company is suggesting that more radical reforms are needed at the government level, such as questioning some of the larger infrastructure projects and loosening the regulation around foreign workers, for its part Next is continuing to hone its various business lines.”

"At a time when cost control and general efficiencies become more important in a time of rampant inflationary pressure, the company nonetheless benefits from a strong balance sheet which provides it with significant headroom.”