Next predicts higher profits as summer dresses and suits increase sales

Next is set to make £10m more in annual profit than previously expected, after a surge in sales of suits and summer wear boosted sales despite a squeeze on customers’ spare cash from rising energy, petrol and food costs.

The clothing and home goods retailer said full-price sales rose a better-than-expected 5% in the three months to July 30, but warned it expected growth to slow to just 1% in the second half as the cost of The life crisis hit shoppers’ budgets.

The first-half sales result saw Next lift its full-year profit to £860m, ​​which would be 4.5% higher than last year.

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

Simon Wolfson, Next’s managing director, said: “The good summer helped sales of summer weight products and we sold more holiday items as more people go away.”

As well as the boom in demand for warm-weather gear such as shorts and sundresses, Lord Wolfson said there had been an increase in sales of suits, both for men and women, amid a return to office work and a wealth of events such as weddings, after more than two years of restrictions.

However, he said it was not yet clear whether this was a long-term trend back towards smarter dressing and buying fewer, better items, or mostly just people replenishing their wardrobes after more than two years of living in casual clothes while they worked from home during the pandemic.

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

Thanks to reduced competition on the high street, Next’s full-price store sales in the quarter were 4.5% up on last year and almost 5% ahead of pre-pandemic levels.

“It’s not just people who stopped shopping altogether, but a lot of stores were closed by people who are still shopping,” Wolfson said. “Those leaving trade are likely to pick up business from those who are no longer around.”

The company warned that spending is likely to worsen in the second half of the year when it is set to increase prices on clothing by about 8% – 6.5% for fashion and 13% for homeware – after a 3.7% increase in the first half.

Wolfson said he expected clothing price increases to continue into next year, but not at the same pace because the cost of shipping and goods such as cotton came down as higher prices dampened demand.

He said trade through the fall and winter is likely to be different depending on product categories. Household items have suffered a “very dramatic drop” in sales compared to last year as families were very focused on renovating properties, while formal wear was already ahead of pre-pandemic levels and is likely to continue to do well.

In contrast to strong in-store trading, Next’s online sales rose just 0.2% in the quarter compared to the same period last year, although that was up from an 11.1% fall in the previous three months – compared to 2021 when Next shops were closed during the lockdown.

Wolfson said: “It doesn’t necessarily mean that online growth is done. I think it’s unlikely.”

The company said return rates on goods had rebounded and were close to pre-pandemic levels of 42%. Far fewer customers returned products during the pandemic, when homeware, children’s clothing and sportswear were popular. Such items tend to be returned less often.

Next shares rose 2%, making the retailer one of the biggest gainers on the FTSE 100 on Thursday morning.

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