Next said it had seen no post-referendum recovery in sales and that trading remained difficult after profit fell in the first half of the year.
The fashion retailer said it had strong sales in July but that this was the result of a bigger end-of-summer sale than the year before. Lord Wolfson, Next’s chief executive, said the pound’s fall could push up inflation and squeeze consumer spending power.
Wolfson said the pound’s fall could increase the wholesale cost of buying garments by up to 5%. He said he would sooner lose some sales than take a big hit on profit margins, suggesting prices are likely to rise in stores.
The company’s shares were leading the FTSE 100 fallers on Thursday morning, down 5% at £49.52.
The Tory peer said consumers had continued to switch spending away from clothing to leisure items such as eating out and holidays. He said the current quarter was likely to be the toughest of the year for Next but that business would pick up if there was a cold winter.
He said: “Full price sales in July remained subdued, so we do not believe that July trading represented any change in underlying consumer spending patterns. Trading since July, which to some extent may have been affected by the sale, has remained challenging and volatile.”
Next’s pre-tax profit for the six months to the end of July fell 1.5% to £342.1m as full-price retail sales fell 4%. Retail profits fell 16.8% to £133.9m but group results were supported by a recovery at the Directory home shopping division where sales rose 10.9% to £204.2m.
Retail sales rose in July after falling in June, according to official figures. The numbers appeared to suggest shoppers had shrugged off the Brexit vote as warmer weather boosted trade though economists warned the snapshot could have little bearing on the longer term health of the high street.
Wolfson warned in March that the high street would suffer the most difficult trading conditions this year since the financial crisis. He blamed a general consumer slowdown and a growing trend for people to spend on experiences rather than material goods, as well as unseasonal weather.
Wolfson stuck to guidance for annual profit published in August, which said annual profit could fall as much as 5.6% or rise by up to 2.9%. He said the wide range reflected economic uncertainty and volatile consumer demand.
