Next beats FY forecasts, but warns profit and sales will fall this year

By Geoffrey Smith 

Investing.com -- Next (LON:NXT) beat its own guidance for full-year profit after stronger-than-expected clearance sales at New Year, but warned that it still expects sales and profit to fall this year, as the post-pandemic boost from the release of pent-up demand fades.

"The year ahead looks like it will be challenging," Chief Executive Simon Wolfson said in a statement, repeating the company's previous guidance for pretax profit of £795 million (£1=$1.2327) and a 1.5% drop in full-price sales. Net earnings per share are expected to fall 13% to 502p.  

The lack of an upgrade disappointed some analysts, who had expected the group to nudge its targets higher after a solid holiday season.

However, Wolfson added that the company's longer-term future looked brighter than at any time over the last eight years, with the company overcoming the various headwinds of the pandemic, high inflation and, most importantly, the structural change to e-commerce in the retail sector. 

Wolfson highlighted that the group's rent bill for its shops in the U.K. is finally starting to come down, reflecting what appears to be a permanent loss in the earning power of high street stores. The underlying operating margin at the U.K. retail business has consequently improved by 1.5 percentage points over the last three years. 

For the year that ended in January, total sales struggled to keep pace with inflation, rising 8.8% to £5.03B, while pretax profit rose 5.7% to £870M. The group was able to shift more of its stock at full price than it had expected over the Christmas sales period, adding £10M to pretax profit.

Next indicated that it expects inflation pressures to ease in the course of the year, revising down the guidance for its selling prices. It now sees a price increase of only 7% for its summer collections and 3% for its autumn and winter collections, down from 8% and 6% respectively in its forecasts two months ago. 

Wolfson said the outlook for the coming year is still highly uncertain. 

"No one really knows how the continuing cost of living squeeze will affect consumers, and we do not know what effect lower selling price inflation will have in the second half," he said, adding that: "It is equally unclear how much the exceptional summer weather, pent-up demand, and the Jubilee contributed to last year's sales."