Next shares were down sharply on Wednesday morning after the retailer forecast lower profit before tax for the year ahead and predicted full price sales would fall 1.5%.
Profit before tax for the year ending January 2023 was £870m, slightly better than the £860m guided for earlier this year. However, the group said they saw profit before tax falling to £795m in the coming full year.
In addition, the retailer marked down their selling price inflation predictions to 7% suggesting margins could be squeezed if input prices rise. A 7% increase in prices itself is a concern amid a cost of living crisis.
Next shares reacted negatively to the news and were down over 7% at the time of writing.
“Next delivered full year profits ahead of guidance. That was thanks to increased retail sales which are typically higher margin, as well as a strong end of season sale. Significant reductions in shipping costs eased pressure on the price hikes that Next is planning on passing through to customers,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
“But with selling prices still expected to rise by 7% in the first half of this year, we think it could be tough for consumers to stomach given that a lot of consumers’ budgets are already stretched thin. Next’s position as a middle-of-the-road retailer means its customers could slide down the value chain rather than fork over a little more.”
Next is operating in a challenging retail environment with choppy economic data providing a gloomy outlook for the UK economy – albeit an improved outlook compared to the end of 2022.
“Overall, Next, and the rest of UK retail, are still facing a very difficult economy in 2023. But with inflation starting to moderate, things are not looking as bad as they were a few months ago,” said Charlie Huggins of Wealth Club.