UK’s Next expects clothing inflation to fall as costs improve

London — British fashion retailer Next reported a better-than-expected 5.7% rise in annual profit on Wednesday and said it would not need to increase prices by as much as previously thought.

Next, which trades from about 500 stores and online and is often considered a good barometer of how British consumers are faring, said inflationary pressures were expected to ease as freight costs drop and the cost of goods improve.

However, higher costs for wages and energy are still expected to reduce its profit this year. Its shares fell 5% at the open, after it retained its cautious outlook.

Next has shown more resilience than most to the cost-of living crisis in Britain and is considered by analysts to be one of the best run retailers in the country. Its shares had been up 16% this year, prior to Wednesday's update.

It now expects like-for-like price inflation in the northern hemisphere’s spring/summer of 7% and 3% in autumn/winter — down from its previous forecast of 8% and 6% respectively.

That reflected a significant reduction in container freight costs and improving factory gate prices — the price at which it purchases goods — due to increased factory capacity and efforts to move production to more cost effective areas.

The improved price outlook fits with a Bank of England forecast for inflation to fall from its 10.4% annual rate in February to below 4% by the end of 2023.

Next made a pretax profit of £870.4m in the year to January 2023 — versus guidance of £860m and up from £823.1m in 2021/22.

Sales of items sold at full price rose 6.9% in 2022/23, with total sales up 8.4% to £5.15bn.

For 2023/24, Next kept it kept its guidance for a 1.5% decline in full-price sales and profit of £795m.

In the first eight weeks of its new financial year full-price sales were down 2.0%, in line with its expectations. 

Reuters