Next, a leading fashion retailer in the UK, has revised its sales and profit forecast, indicating that consumers are tightening their belts and reducing spending. This downgrade comes just a month after the company upgraded its profit guidance, showcasing the difficult times faced by the entire sector.

Despite the downgrade, Next reported positive performance in the first half of the year. Brand full-price sales were up 12.4% compared to the previous year and 22.3% higher than in 2019. Profit before tax also saw an increase of 16%, reaching £401 million, and a 22% increase from three years ago. However, the company experienced lower-than-expected trade in August and anticipates rising cost of living pressures in the near future.

In September, sales have shown improvement, and Next believes it may benefit from recent government measures. However, the company has decided to reduce its forecast for full-price sales in the second half of the year from +1% to -1.5% compared to the previous year. Additionally, Next has revised its profit guidance for the full year from £860 million to £840 million, which still represents a 2.1% increase from last year. This adjustment is significant considering Next’s role as a bellwether for the UK retail sector.

Looking back at the first half of the year, Next described it as a positive period overall, with sales surpassing expectations. Strong sales in retail stores and formalwear were credited for this success. However, the company acknowledged that margins were affected by increased costs in serving its online business abroad and higher spending on software development.

The dip in sales observed in August has prompted Next to reconsider its outlook. The company recognizes the potential for challenges and opportunities and has outlined various focus areas to improve its operations. These include enhancing the online delivery service, increasing profitability in growing areas such as Label and overseas operations, improving the website, and expanding the supply base to mitigate currency issues.

Next has already implemented price increases of around 8% for its AW22 ranges compared to 2021, reflecting higher costs. Similar inflation rates are expected for its SS23 season. Next CEO Simon Wolfson noted the numerous variables impacting the situation, such as energy, freight, employment, tax, economic migration, and exchange rates. He emphasized that the current inflationary shock is the most significant the UK has experienced in over 40 years, and the economy today is vastly different from that of the 1970s.

Ultimately, Next’s downgrade in sales and profit forecast highlights the challenges faced by the UK retail sector. As a key player in the industry, Next’s cautious approach indicates that even companies with healthy profits are feeling less confident. The uncertain future calls for adaptability and preparedness to navigate potential obstacles and capitalize on emerging opportunities.

Useful links:
1. BBC: Next profit forecast cut after August fall in sales
2. Financial Times: Next reduces profit and sales guidance after slow August