Yahoo Finance Next softens doom and gloom forecasts despite fall in profits
Next said the outlook for sales was brighter than its previous gloomy predictions as it reported a near 10% fall in first half profits.
At the start of 2017, the Next chief executive, Simon Wolfson, warned of a tough year ahead but on Thursday he softened his stance: “While the external environment looks set to remain difficult, from where we stand today our prospects appear somewhat less challenging that they did six months ago.”
Pre-tax profits at Next fell 9.5% to £309.4m on sales of £1.9bn in the 26 weeks to 29 July. There was a divergent performance between its home shopping arm Directory, where profits climbed 6.3% to £217.1m, and its high street chain where they collapsed by a third to £89.5m.
Nonetheless Lord Wolfson said its performance over the summer months had been encouraging on a “number of fronts” with its new autumn ranges well received by shoppers. The improving trend saw the retailer up its sales and profit forecasts for the full year, propelling its shares to the top of the FTSE 100 leader board. They gained £5.77, to close up 13% at £49.94.
Wolfson, a prominent Vote Leave campaigner whose views on the economy are closely watched, also predicted that Brexit-related price rises would come to an end next year. It had previously warned customers that its prices would rise by about 5% in 2017, as the collapse in the value of the pound since the EU referendum made imported goods and services more expensive. But Wolfson said that negotiations with suppliers had brought that figure down to 4%.
“Next year price inflation looks set to work its way out of the system as the effects of the one-off Brexit devaluation of the pound begin to annualise,” he said. “Assuming no further movement in the value of sterling, in the first half of 2018 we expect price rises of no more than 2% and no price rises at all in the second half of 2018.”
Consumer budgets have been under increased pressure in recent months as prices rise faster than wages. Inflation rose to 2.9% in August from 2.6% in July, driven higher by the increased cost of importing fuel, clothes and food.
Wolfson said that despite the dire performance of its existing 530-strong high street chain, it would continue to open new shops as they were a valuable financial asset, not least because more than half of Directory orders were collected from them. “We are definitely not being as aggressive as in the past,” he said. “We have to make sure we get the returns that we need.”
