Next has upgraded profit hopes for the year after ringing up £38m more in sales than expected in the run-up to Christmas, but warned that difficulties in the Red Sea could delay deliveries and hit sales in the year ahead.
The fashion and homeware chain said full-price sales had stepped up dramatically, rising by 10%, in the last two weeks before Christmas. As a result, sales rose by 5.7% in the nine weeks to 30 December, far better than the 2% expected.
It is the fifth time in seven months that Next has increased its profit forecast.
Next does not expect to have to put up prices in the year ahead as costs have remained steady. The retailer’s chief executive, Simon Wolfson, had hoped prices would drop this spring but he said they were now likely to hold steady because of the national minimum wage rise in April and problems in the Suez canal, which have driven up delivery costs.
He said the attacks by Houthi rebels, which have forced container ships to travel around Africa rather than through the canal, could delay deliveries, which may “moderate sales” if the disruption continued for a long period. “A lot will depend on how long this goes on for,” Wolfson said. “The extra sailing time eats into capacity in the network and we could begin to get constraints. At the moment it is an inconvenience not a crisis.”
Next said it had performed particularly well online after it improved its service, with sales rising by 9.1% in the three months to the end of December. Sales in stores rose by 0.6% after a fall in the previous quarter.
The retailer said it now expected to make full-year profits of £905m, £20m more than previously hoped.
Lord Wolfson said the company had traded better than expected because it had underestimated the effect of online service improvements after last year, when deliveries were affected by an “extremely congested” warehouse and the Royal Mail strikes.
Richard Lim, the chief executive of analysts Retail Economics, said: “These figures are astonishingly strong and they will set them apart from the competition. There’s a gap emerging between those retailers who have invested heavily in their digital proposition over the last decade with those who have not and Next is leading the pack.”
Next’s share price rose by almost 5% on Thursday – hitting an all-time high of £85.32 - as the company said it expected full-price sales to rise by 2.5% in the year ahead and up by 6% in total, including new brands such as Gap and Reiss and discounted goods.
Wolfson said the year ahead was “looking like a more normal year” after three years of the pandemic followed by the cost of living crisis, with wage inflation now running ahead of price inflation. “On the flip side, inflation in wages may impact employment,” he said.
The stronger-than-expected trading figures will lift hopes for other retailers for the festive season, when shoppers had been expected to cut back on buying clothing amid tight household budgets and renewed interest in travel.
The chemist and beauty chain Boots on Thursday revealed it had also had a strong autumn and Christmas period, reflecting a good season for beauty products in 2023. The company said sales rose 9.8% in the three months to 30 November led by a 17.5% rise in online sales and strong beauty sales – up 11.4%. The company said Black Friday on 24 November was Boots’s biggest ever day of sales, with one bottle of fragrance sold every second.
The company will not report on Christmas trading until later this year but said: “Early indications suggest a strong Christmas period with sales from Black Friday week until the new year beating last year’s excellent performance.”
However, the upbeat mood was offset by a profit warning from JD Sports which said mild weather in the early autumn and higher-than-expected levels of discounting in the run-up to Christmas had both hit sales.
