Next increased its profit expectations for the year, after selling £38m in excess of what was expected in the lead-up to Christmas. However, the company warned that problems in the Red Sea may delay deliveries and affect sales in the coming year.
Fashion and homeware retailer said that full-priced sales had increased dramatically in the two weeks leading up to Christmas, by 10%. Sales rose 5.7% over the nine-week period ending 30 December. This was much better than the expected 2%.
Next has increased its profit projection for the fifth time within seven months.
Next doesn’t expect to raise prices this year as costs are stable. Simon Wolfson was the chief executive of Next and had expected prices to drop this spring, but now he says they are likely to remain the same because the minimum wage increase in April, as well as problems with the Suez Canal, have increased delivery costs.
He said that the attacks of Houthi rebels could delay deliveries and “moderate” sales if disruptions continued for an extended period. Wolfson stated that “a lot depends on how long it continues.” The extra time spent on the water will reduce capacity and could lead to constraints. It is not a major crisis at the moment.
Next reported that it performed exceptionally well online, after improving its service. Sales rose by 9.1% over the three-month period ending in December. The sales in stores increased by 0.6% following a drop in the previous quarter.
The retailer now expects to make a full-year profit of £905m. This is £20m higher than it had previously expected.
Lord Wolfson stated that the company’s performance was better than anticipated because they underestimated the impact of improvements in online services after last year when the Royal Mail strike and an “extremely crowded” warehouse affected deliveries.
Richard Lim, chief executive of Retail Economics analysts, said: “These figures are astoundingly strong and will set them aside from the competition.” Next leads the pack of retailers that have heavily invested in their digital offering over the past decade.
Next’s shares rose almost 5% Thursday, reaching an all-time-high of £85.32. The company stated that it expects full-priced sales to increase by 2.5% this year and by 6% overall. This includes new brands like Gap and Reiss as well as discounted goods.
Wolfson said that the year ahead “looks like a normal year”, after three years of pandemic, followed by a cost-of-living crisis. Wage inflation is now ahead of price inflation. He said that wage inflation could impact employment.
The stronger-than-expected trading figures will lift hopes for other retailers for the festive season, when shoppers had been expected to cut back on buying clothing amid tight household budgets and renewed interest in travel.
Boots the chemist chain and beauty retailer, revealed on Thursday that it also had an excellent autumn and Christmas season. This reflects a promising beauty product season in 2023. Sales rose by 9.8% during the three-month period ending 30 November, mainly due to a 17.5% increase in online sales. Beauty sales also increased by 11.4%. Boots said that Black Friday, 24 November, was its biggest day ever of sales. One bottle of perfume was sold every two seconds.
The company won’t report on its Christmas sales until later in the year, but it said that “early indications indicate a strong holiday period with sales exceeding last year’s performance from Black Friday to New Year.”
JD Sports, however, issued a profit warning that was tempered by the fact that the milder weather of early autumn as well as the higher than expected discounting levels in the lead-up to the Christmas season had affected sales.