Profit upgrade at Next raises hopes UK shoppers still keen to spend

Next has raised hopes that UK consumers are still willing to spend despite pressures on household budgets, as it revealed sales and profit growth “materially above” expectations. The clothing and homeware retailer said it benefited from sunny weather over the summer, the online shutdown of the rival Marks & Spencer for several weeks after an Easter cyber-attack and an improvement in clothing supplies from countries such as Bangladesh compared with last year. The retailer, which now owns the UK rights to the US brands Gap and Victoria’s Secret as well as stakes in a plethora of labels including Reiss and Joules, raised its annual profit guidance by £30m – its fourth upgrade in eight months. Analysts said Next, which now expects full-year profits of £1.14bn compared with £987m last year, had proved “largely immune” to the pressures of a weak consumer environment and fears about November’s budget in the UK. Julie Palmer, a partner at the advisory company Begbies Traynor, said: “Next has once again proven why it’s the gold standard in UK retail. “At a time when many retailers are feeling the squeeze from rising costs, weak consumer confidence and uncertainty around the next budget, Next appears largely immune to such pressures. Instead, with a growing international presence and consistently strong UK performance, the FTSE 100 retailer remains firmly on a winning streak.” David Hughes, at Shore Capital, said the pace of growth was “materially above guidance. This strong performance despite a challenging consumer environment is a reflection of the quality of the Next proposition.” However, Mark Crouch, a market analyst at eToro, said Next’s numbers could suggest the consumer economy was stronger than the City believed. “Either Lord Wolfson and his team have cracked the code of middle-England spending, or they’re quietly signalling that the cost of living crisis has passed its peak. Whatever the case, if this is what a ‘weaker economy’ looks like, investors may need to redraw their assumptions.” Next said it had outperformed its quite modest expectations in the UK and overseas. Sales in the UK rose 5.4% in the three months to 25 October, a slowdown from the 7.6% growth in the prior six months when it benefited from the cyber-attack on M&S but well above the 1.9% expected. Growth was led by its Label online business, which sells a broad range of brands from Rixo to Nike, where sales rose 12.6%, while sales in UK stores rose 2%, and its online Next brand business increased by 4.2%. International sales rose by 39%, an acceleration from the 28% growth in the previous six months, as Next said it had spent more on marketing. The company said it had £369m in surplus cash and expected to pass much of that to shareholders with a special dividend in January.