Next rang up £70m more sales than expected over Christmas after a surge in online orders of party dresses and suits but warned that higher clothing prices are on the way as inflationary pressures grow .
Next warned of a “tougher environment” for the year ahead with clothing prices set to rise by up to 6% in the autumn after significant increases in the cost of manufacturing, shipping and hiring staff for warehouses, shops and in its technology centres.
Simon Wolfson, the chief executive of Next, said: “The key level of uncertainty is the inflationary environment. I have been in business for 30 years and I don’t think I have ever been through another period of economy-wide inflation on this scale. That’s an environment we are going to have to get used to trading in … How well we fare in that environment is difficult to see.”
The fashion and homewares chain is the first retailer to report its Christmas trading results, potentially giving an indication of how the high street fared in the biggest sales period of the year.
The group said it now expected to make £822m in annual profits, £22m more than previously hoped for and almost 10% ahead of pre-pandemic levels, in its fifth increase in guidance in less than a year.
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In the eight weeks to Christmas Day, Next said its sales rose 20% on 2019 – before the Covid pandemic – despite suffering “materially lower” levels of stocks than it had hoped for while its delivery service had struggled because of labour shortages in its warehouses and distribution networks.
“The fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period,” the company said.
Lord Wolfson said the surge in sales of suits, in particular, was “a measure of how little has been bought of those products over the last two years”.
The group’s strong performance was underpinned by an 85% surge in full-price online sales compared with 2019 at its Label business, which sells brands such as Ted Baker, Nike and Mint Velvet. Online sales of Next goods in the UK and overseas were also up by more than 30% in the three months to 25 December, while sales in its UK and Irish stores fell 5.4% on 2019.
Wolfson said sales in stores had been much better than the 10%-plus fall anticipatedprobably because the high street was beset by very heavy discounting two years ago.
“A lot of those [businesses doing the discounting in the past] are not even trading today,” he said. “That’s likely to have helped in [Next] stores.”
He added that shoppers had not been significantly deterred from coming into Next shops by the Omicron surge.
Next said it was assuming there would not be further disruption fro the pandemic but it was unclear how much it had benefited from shoppers spending their savings built up during lockdowns and whether a return to spending on holidays and other social activities would hit sales of non-essential goods such as clothing.
Sales are expected to rise by 7% in the year ahead, with growth slowing significantly in the latter part of 2022 as price rises force down the number of expected purchases.
Next expects its prices to increase by almost 4% this spring and summer while the price of its autumn ranges would be 6% ahead of last year because of higher freight and manufacturing costs.
The company said that average wages were also set to rise by 5.4% across the group driven by the April increase in the legal minimum wage as well as shortages of warehouse and technology workers.
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Richard Lim, the chief executive of Retail Economics, said: “These are mightily impressive results and demonstrate the growing strength of the brand and its agility to operate through the ongoing challenges posed by the pandemic. The results shine an optimistic light on the resilience of consumer demand and the effortless transition shoppers now make between buying online and in-store.
“The outlook for 2022 looks more challenging. For many households, this year will be a ‘pinch point’ as the combination of tax hikes and a rise in the cost of living erode incomes.”
Despite the concern about cost rises, Next said it would pay out £205m to shareholders, or 160p per share, in a special dividend at the end of January.
