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Next Raises Profit Expectations Amid Strong Sales Performance

  1. Next raises profit forecast.
  2. Strong sales and cost control.
  3. Positive outlook for retailers.

Next, the leading fashion and homewares retailer, has revised its annual profit forecast for the third time in four months, attributing the positive adjustment to robust sales and effective cost management in the first half of the fiscal year.

The high-street giant reported an impressive 5.4% surge in total group sales for the first half, concluding in July. Full-price sales exhibited a notable 3.2% increase compared to the same period in the previous year. Consequently, Next’s profit before tax also experienced growth, rising by 4.8% to reach £420 million. Consequently, the company now anticipates an annual profit of £875 million for the entire 12 months, marking a 0.5% increment from the previous guidance of £845 million.

Simultaneously, JD Sports Fashion, another company that has thrived despite challenging economic conditions, reported a substantial 12% underlying sales growth for its first half. While much of this growth stemmed from international expansion, the retailer maintained its annual profit projection, hovering just above £1 billion, signifying a 5% increase.

Next Raises Profit Expectations Amid Strong Sales Performance

Both companies released these positive updates at a time when consumers’ budgets continue to face strain due to the ongoing cost of living crisis, exacerbated by the Bank of England’s efforts to combat inflation by increasing borrowing costs.

Although recent data indicates record-level wage increases, price hikes in essential commodities such as food and beverages, while moderating, still exceed the overall inflation rate at 13.6%.

According to the Office for National Statistics, the cost of clothing and footwear rose by 7% in the 12 months leading up to August. Despite a challenging July marked by inclement weather, an industry report earlier this month indicated a resurgence in non-food sales as sunny summer weather returned, making it the best month for non-food sales since February.A common trend among retailers is the gradual alleviation of cost pressures throughout the year.

Next cited the sourcing of products from new suppliers as a contributing factor to its enhanced profit expectations. Initially, the company had anticipated a 3% decline in full-price sales due to market challenges.

Next’s Chief Executive, Lord Wolfson, acknowledged the company’s cautious approach, stating, “In reality, we were overly cautious about the prospects for sales in the current year. We underestimated the support nominal wage increases and a robust employment market would give to our top line. We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time.”

The positive outlook from Next and JD Sports boosted their stock prices, with Next shares rising by over 20% year-to-date and JD’s stock surging by 6%. Wider retail stocks, including those of Sports Direct owner Frasers Group, M&S, and B&M, also benefited from the optimistic forecasts.

Russell Pointon, Director of Consumer at Edison Group, commented on Next’s performance, highlighting the company’s success in overcoming initial challenges through enhancements in product offerings, online services, cost control, and innovative business strategies. Pointon also noted the positive impact of improved stock availability and effective marketing strategies, along with cost savings achieved through online service enhancements.

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