Key events
In France, inflation picked up slightly in December on the back of higher prices for energy and services.
A preliminary estimate from the national statistics office INSEE showed annual inflation rose to 4.1% from 3.9% in November, in line with economists’ forecasts.
Food price inflation slowed to 7.1% from 7.7% but energy prices rose by 5.6% year on year, faster than the 3.1% in November. Services inflation accelerated to 3.1% from 2.8%.
Here is our full story on the contrasting fortunes of Next and JD Sports.
Next is the top riser on the FTSE 100 index, up by 5.4%, while JD Sports shares plunged by 17.7%.
The boss of JD Wetherspoon, Sir Tim Martin, said Dry January is turning into a “minor cult”, as pub chains across Britain prepare for a month of slow trade.
Martin told City A.M that people have “always overindulged at Christmas and then tried to compensate in January”.
To an extent Dry January has just given a name to what happened anyway. But perhaps it is turning into a minor cult, even so.
Overall, I’m not sure that pubs can legitimately advise people to start drinking in January if they don’t want to.
Many people try to give up alcohol during January, in a challenge encouraged by the charity Alcohol Change.
The outspoken founder and chairman of JD Wetherspoon, a prominent Brexit supporter, has just been awarded a knighthood for services to the hospitality industry.
Simon French, chief economist at Panmure Gordon, said Next’s “very decent” performance bodes well for the economy overall in the October to December quarter.
V decent trading update from Next plc – an important UK retail bellwether with full price sales +5.6% in 9 weeks to 30 Dec. Chimes with what retailers/hospitality have been saying about Dec – it rebounded from a soft autumn. Points to UK GDP in Q4 recovering from a soggy October
— Simon French (@shjfrench) January 4, 2024
Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, who owns shares in Next, said:
Next has pulled yet another rabbit out of the hat today, leading to a further upgrade to its full-year sales and profit guidance. It has demonstrated once again why it is considered one of the best run retailers around.
UK consumer spending appears to have defied gravity. A strong employment market and rising wages have helped cushion inflationary cost pressures, meaning consumers have continued to fill their Christmas stockings with Next’s wares, despite the gloomy economic headlines.
Next’s online sales were particularly strong reflecting better stock availability and excellent operational execution. This stands in stark contrast to other retailers like Superdry which have struggled in the prevailing economic environment.
The future for Next looks bright and is reflected in the group’s guidance to grow sales and profits again in the year ahead.
Next’s core proposition is clearly resonating with the UK consumer and is being augmented by intelligent acquisitions of brands like Fat Face. With inflation falling and wages rising, the economic picture also looks a lot less bleak than at the start of last year.
Next said it had done especially well online after improving its service. Online sales rose by 9.1% in the three months to the end of December following a decline in the previous three months.
Retail analyst Richard Lim added:
Their online sales were the driving force this Christmas but it was only made possible with the evolving value of their stores. Click and collect, showcasing products in shops, and returns to stores are all critical requirements for an increasing number of consumers.
Their clever acquisitions over the last few years are also beginning to reap rewards.
Next has been on a buying spree and recently acquired the casual clothing chain FatFace. It also snapped up Cath Kidston, the online furniture retailer Made.com and JoJo Maman Bébé since the height of the Covid pandemic.
Introduction: Next raises profit forecast after Christmas sales surge; JD Sports issues profit warning
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK clothing chain Next has raised its profit forecast for the fifth time in seven months, as it reported better-than-expected sales for the Christmas period, while JD Sports Fashion blamed warm weather for a worse-than-expected performance and warned on profits.
The fashion and homewares retailer said sales rose by 5.7% year-on-year in the nine weeks to 30 December, better than its previous estimate of 2% growth. In the last two weeks before Christmas, sales jumped by 10%.
It upgraded its profit before tax estimate by £20m to £095m, up by 4% from last year. Of that, £17m came from the sales beat so far and £3m from an upgraded sales forecast for January.
Richard Lim, the chief executive of the consultancy 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 went into the end of season sale with 12% less stock than last year. The retailer said:
On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties.
Next pointed to wages rising in line with, not more than, inflation, but said it does not intend to raise its selling prices in the year ahead.
Risks include a weakening employment market, as vacancy rates in the UK have already fallen over the last six months, and if this continues, is likely to result in increased unemployment. Fixed-rate mortgage deals will continue to expire forcing homeowners to refinance at much higher rates than they have been used to in recent years.
Next also mentioned that difficulties with access to the Suez canal (caused by Houthi attacks in the Red Sea), if they continue, are likely to cause some delays to stock deliveries in the early part of the year.
The largest cost increase will be wage inflation, estimated to be about £60m, due to inflation and the rise in the national living wage.
The sports retailer JD Sports didn’t fare as well, and blamed milder weather and a glut of promotions in the sports market. Like-for-like sales rose by 1.8% in the 22 weeks to 30 December, behind its expectations, while total revenue growth was 6%.
It lowered its estimate for profit before tax and adjusted items to between £915m and £935m, 10% below its previous guidance of £1.04bn.
Its new chief executive Régis Schultz said:
We have made good progress against our five-year strategic plan, delivering global organic revenue growth of 6% in the period, against very tough comparisons with last year, and opening over 200 new JD stores in the year. Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share.
The agenda
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8.15am-9am GMT: HCOB Services and Composite PMIs for eurozone
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9.30am GMT: UK Mortgage approvals and lending for November
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9.30am GMT: UK S&P Global/CIPS Services PMI final for December
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1pm GMT: Germany inflation for December
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1.15pm GMT: US ADP Employment change for December
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1.30pm GMT: US Initial jobless claims for week of 30 December
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2.45PM GMT: US S&P Global services and composite PMIs final for December
