NEXT lifts profit guidance on the back of "strong" trading

NEXT has hiked its profit guidance for the year as it was buoyed over the past three months by improved full price trading and a strong end-of-season sale.

The high street giant reported that full price sales increased 6.9% over the 13 weeks to 29 July 2023, driven by 10% growth in its online business. Retail sales were up 2.2%.

NEXT said its end-of-season sale had "gone well" and that clearance rates were ahead of expectations.

"Stock levels have been well controlled and we went into the end-of-season sale with surplus stock down 22% versus last year. Clearance rates, to date, are ahead of last year and ahead of our internal forecasts, which has added around £4 million to company profit before tax," the company said in a trading statement.

Sales growth slowed down over the last six weeks of the period after being boosted by warm weather in May and June.

The company said it is maintaining its forecast for full price sales to be up 0.5% versus last year in the second half, which would result in full price sales for the full year being up 1.8%.

Pre-tax profit guidance for the current financial year has also been raised by £10 million to £845 million.

This latest trading update follows on from an unscheduled update issued on 19 June stating that NEXT had experienced a better than expected period of full price sales, mainly driven by the exceptionally warm weather the country was experiencing at that time. Since then, the weather has deteriorated contributing to a slowdown in growth.

Charlie Huggins, Manager of the ‘Quality Shares Portfolio’ at Wealth Club, said: "NEXT pulled a rabbit out of the hat on 19 June when it said sales had been much better than expected in the first seven weeks of the year. Since then sales growth has remained robust with NEXT ending the first half strongly. The group's end-of-season sale also went better than expected, which has led to a modest increase to full year profit guidance.

"Despite this excellent first half performance, NEXT remains cautious and is expecting sales to be broadly flat in the second half, a material slowdown. This probably reflects a degree of conservatism from the company. It also likely reflects the recent rapid increase in interest rates which could be set to bite harder in the second half, sapping consumer confidence.

"So far, 2023 has not been anywhere near as bad as expected for the UK consumer, and this has benefitted NEXT and its peers. The big question is – how much longer can this last? Recent signs that inflation is moderating offers hope for the economy, but the longer interest rates stay above 5% the greater the likely squeeze on disposable incomes."