Next predicts higher profits as summer dresses and suits increase sales

Next is set to make £10m more in annual profits than previously expected after a surge in sales of suits and summer clothes boosted sales despite a tight cashier for buyers due to rising energy costs, gasoline and food.

The apparel and homeware retailer said full-price sales rose 5% better than forecast in the three months to July 30, but warned it expects growth to slow to just 1% in the second half of the year, as the cost of living crisis hit buyers’ budgets.

First-half sales performance prompted Next to raise its annual profit estimate to £860m, ​​which would be 4.5% higher than last year.

The company also benefited from the closing of rival stores during the pandemic, as Debenhams, Topshop and Dorothy Perkins went into administration and their new owners switched to selling only online.

Simon Wolfson, chief executive of Next, said: “The good summer has helped with summer weight product sales and we sell more holiday stuff as more people are leaving.”

In addition to the boom in demand for warm-weather clothing such as shorts and sundresses, Lord Wolfson said there has been a surge in suit sales, both men’s and women’s, amid a return to office work and a variety of events, such as marriages, after more than two years of restrictions.

However, he said it’s still unclear whether this is a long-term trend to dress smarter and buy fewer better items, or mostly just people replenishing their wardrobes after more than two years of living in casual clothes. while working from home during the period. pandemic.

“The question is whether this is indicative of more investment clothing and away from the six to 10 year trend of much more casual clothing,” he said.

Thanks to reduced street competition, Next’s full-price in-store sales for the quarter were 4.5% higher than last year and nearly 5% above pre-pandemic levels.

“Not only have people stopped trading altogether, but a lot of stores have been closed by people who are still trading,” Wolfson said. “Those who have left the trade will likely take business from those who are no longer around.”

The company warned that spending is expected to worsen in the second half, when it is expected to increase clothing prices by around 8% – 6.5% for fashion and 13% for home goods – after a 3.7% increase in the first half. of the year.

Wolfson said he expects clothing price inflation to continue next year, but not at the same pace because the cost of shipping and commodities like cotton are falling as higher prices reduce demand.

He said autumn and winter trading is likely to be different depending on product categories. Homeware has been hit by a “very dramatic drop” in sales compared to last year, when families were very focused on property renovation, while formal wear was already ahead of pre-pandemic levels and would likely continue well. .

In contrast to strong in-store trading, Next’s online sales grew by just 0.2% in the quarter compared to the same period last year, although it was a rebound from the 11.1% decline in the previous three months – in compared to 2021, when Next stores were closed during the confinement.

Wolfson said: “This doesn’t necessarily mean that online growth is over. I find it unlikely.”

The company said item return rates rose again and were close to pre-pandemic levels at 42%. Far fewer customers returned products during the pandemic, when homewares, children’s clothing and sportswear were popular. These items tend to be returned less frequently.

The next shares were up 2%, making the retailer one of the biggest rises on the FTSE 100 on Thursday morning.

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