Yahoo Finance Next trims profit target as Ukraine war and inflation cloud outlook
Next (NXT.L) lowered its profit and sales targets for this year in response to geopolitical tensions, weaker international sales and soaring inflation.
The FTSE 100 (^FTSE) firm forecast a £850m ($1.1bn) profit in the 12 months to January. This is a £10m drop on its previous estimate despite UK sales to date outperforming expectations, it said on Thursday.
The British clothing and housewares chain blamed the profit hit on the closure of websites in Ukraine and Russia due to war, and slowing growth in other overseas territories. The website closures knocked £65m of sales from its business.
UK consumers are also less likely to spend money on clothes as they face a cost of living crisis due to higher inflation and rising energy and fuel costs.
Read more: Supermarkets slash petrol and diesel prices after Rishi Sunak announces fuel duty cuts
Earlier in March, Next said it was winding down its Russian distribution site following the invasion of Ukraine.
It also lowered its full-price sales growth for 2022 to 5%, down from 7%, and cut its sales expectations in other overseas territories by £70m.
Shares in the company declined 3% in early trade on Thursday in London.
"The effects of the pandemic are ongoing and we remain mindful of macroeconomic and geopolitical risks, but our continued investment over many years in our people and our systems has generated strong and resilient results in the past year and we believe that it will continue to do so," said Next chairman Michael Roney.
The shift in guidance comes as the retailer reported profit for last year that met estimates.
Next has emerged as one of the retail sector's main lockdown winners with the retailer raising last year’s profit forecast five times.
Next said that better-than-expected sales in the UK will partially offset the knock in profits and overseas losses, with its physical stores performing better than expected as consumers return to shops.
"It is hard to recall a time when sales have been harder to forecast," a company statement said as it indicated that inflation in selling prices could hit 8% in the second half, up from a 6% forecast in January.
The business also pointed at a "very sharp reversal" in lockdown fashion trends, as formal clothing recovered and spending on home and casual clothing fell back.
Next operates over 500 stores across the UK and has a large domestic and international online division selling its own range of fashion, as well as third-party brands.
Read more: Lloyds to close 60 UK branches in online banking push
Analysts have said that the British retail stalwart is "performing strongly in unusual circumstances".
Steve Clayton, Hargreaves Lansdown select fund manager said: "Having previously sold well online in Russia, there is an obvious hit that has to be taken, but the business is more than strong enough to cope.
"The market’s reaction, knocking the shares back a couple of percent in early trading seems a knee-jerk to the reduction in sales forecasts. But all of that relates to the events in Ukraine and cash generation expectations for the current year are actually improved.
"Longer term, that cash flow modelling suggests that there is in fact much for investors to look forward to."
The results come after UK inflation hit a fresh 30-year high as household budgets come under more pressure and the cost of living crisis deepens.
New ONS data showed consumer prices rose to 6.2% in the year to February, ahead of forecasts of 6% and up from 5.5% the month prior.
Watch: How does inflation affect interest rates?
