Next has upgraded profit hopes for the year after ringing up £38m more in sales than expected in the run-up to Christmas but warned that difficulties in the Red Sea could mean problems with deliveries in the year ahead.
The fashion and homeware chain said that full-price sales stepped up dramatically, rising by 10% in the last two weeks before Christmas. As a result, sales rose by 5.7% in the nine weeks to 30 December, far better than the 2% expected.
It is the fifth time in seven months that Next has increased its profit forecast.
Next said it had performed particularly well online after it improved its service, with sales rising by 9.1% in the three months to the end of December. Sales in stores rose by 0.6% after a fall in the prior quarter.
The retailer, led by longtime chief executive Simon Wolfson, said it now expected to make full-year profits of £905m, £20m more than previously hoped.
Wolfson said the company had traded better than expected because it had under-estimated the effect of online service improvements after last year, when deliveries were affected by an “extremely congested” warehouse and the Royal Mail strikes.
Richard Lim, the chief executive of analysts Retail Economics, said: “These figures are astonishingly strong and they will set them apart from the competition. There’s a gap emerging between those retailers who have invested heavily in their digital proposition over the last decade with those who have not and Next is leading the pack.”
Next’s share price rose by almost 5% on Thursday morning as the company said it expected full-price sales to rise by 2.5% in the year ahead and up by 6% in total, including new brands such as Gap and Reiss and discounted goods.
Wolfson said the year ahead was “looking like a more normal year” after three years of pandemic followed by the cost of living crisis as wage inflation was now running ahead of price inflation. “On the flip side inflation in wages may impact employment,” he said.
Next does not expect to have to put up prices in the year ahead as costs have remained steady. Wolfson had hoped prices would drop this spring but he said they were now likely to hold steady because of the national minimum wage rise in April and problems in the Suez Canal which have driven up delivery costs.
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He said the attacks by Houthi rebels, which have forced container ships to travel around Africa rather than through the canal, could delay deliveries that might “moderate sales” if the disruption continued for a long period. “A lot will depend on how long this goes on for,” Wolfson said. “The extra sailing time eats into capacity in the network and we could begin to get constraints. At the moment it is an inconvenience not a crisis.”
The stronger-than-expected trading figures will lift hopes for retailers over the festive season, when shoppers had been expected to cut back on buying clothing amid tight household budgets and renewed interest in travel.
However, the upbeat mood was offset by a profit warning from JD Sports which said that mild weather in the early autumn and higher-than-expected levels of discounting in the run-up to Christmas had both hit sales.
