Next’s shares tumble 10%, while rivals and other consumer-facing businesses also decline, as the high street stalwart warns that it expects sales growth to vanishing in the second half of its fiscal year.
After Next, a fashion-to-homewares retailer lowered its sales prediction for the second half of its fiscal year and its annual profit guidance, shares of firms that rely on consumer spending fell precipitously.
The company’s half-year results through the end of July revealed that there were too many variables in play among the cost-of-living issue to predict future consumer demand with much certainty.
Next, which is largely regarded as the most consistent high street performer, revealed stronger-than-expected first-half results, with full-price sales up 12.4% compared to the same period in the prior year.
Profit before tax increased by 16% to £401 million.
However, it was discovered that sales declined in August, with some demand returning this month.
Next, which has over 500 locations and an online storefront, anticipates a 1.5% decline in second-half full-price sales.
It had previously projected a 1% gain.
The full-year pre-tax profit prediction decreased by £20 million to £840 million, but still represented a 2% increase over 2020/21.
In early trading, the company’s shares plunged 10%, along with those of rivals on the high street and other consumer-facing firms.
At one point, both the FTSE 100 and FTSE 250 were down more than 2%, while on the continent, the German DAX and French CAC were also substantially lower.
The London Stock Exchange was hardest hurt by homebuilders and personal investment platforms.
Next stated that it hoped to “notice benefits from recent government actions,” specific aid for household energy expenses, but acknowledged that it was difficult to predict the future.
The economy is facing difficulty on multiple fronts, with the pound hitting historic lows this week and government bonds under severe pressure after the mini-budget, necessitating action by the Bank of England.
The pound, at $1.08, and bond yields, the interest rate required to hold UK government paper, were broadly constant on Thursday morning as the prime minister defended the government’s economic plan and its handling in the wake of market criticism.
“There are so many variables in play – energy, freight, employment, tax, economic migration, exchange rates, etc. – that it is impossible to estimate the future based on the past more than ever before,” Next said.
It has been over four decades since the United Kingdom last experienced an inflationary shock of the magnitude we are witnessing today; and the UK economy of the 1970s, with its reliance on highly subsidized and geographically concentrated heavy industry, was incomparably distinct from the economy of today.
We have constructed a picture of what we believe is going on and how the company is expected to be impacted in the next months based on our recent transactions and internal and external economic data.
Several competitors, including Asos, Boohoo, and Primark, have recently reported disappointing trading results.
Charlie Huggins, head of equities at Wealth Club, said of the Next results, “It should come as no surprise that many shops are failing.”
This is likely the most challenging trading environment since the financial crisis of 2008-2009. Inflation has reached levels not seen in forty years.
“The British pound is trading at its lowest level versus the dollar since 1985. Add to this the war in Ukraine and the possibility of additional interest rate hikes. It does not exactly encourage shoppers to replenish their clothes.
“Perhaps the greatest concern for the industry as a whole is that things appear to become even more difficult in the future, even though they are already difficult.
This is owing to the sharp decrease in the value of the pound, which will intensify inflationary pressures.
Next appears better positioned than the majority of its competitors to weather the storm and emerge stronger due to its high margins, robust cash flows, and solid balance sheet. “However, 2023 might be a very challenging year if current trends continue.”
