Next has warned that it expects prices in its stores to rise at a faster pace than originally anticipated as it grapples with the effects of surging inflation, exacerbated by the war in Ukraine.
The retailer is forecasting that prices for homeware items will jump 13% while clothing prices will rise 6.5% in the second half of this year, resulting in an overall average of 8% due to higher transport rates and increased manufacturing costs.
Next had already warned of incoming price rises in January, but it has now increased its estimate from 6%.
The group still predicts sales to grow overall by 5% during its 2022/23 financial year despite a likely hit to demand from price rises and the impact of the closure of its Ukrainian and Russian websites.
Meanwhile, Next expects to make a pre-tax profit of £850m – down by £10m on its January estimate. It reported profits of £823m for the year to 31 January 2022, more than double the amount of the previous year and 10% above pre-pandemic levels.
Lord Simon Wolfson, Chief Executive of Next, highlighted that the worsening cost of living crisis was likely to result in “subdued” trading for the rest of the year. “Over the past 20 years, we’ve seen that what really matters is what’s in people’s bank accounts rather than costs,” he said.
Wolfson added: “From an economic perspective, it is hard to recall a time when sales have been harder to forecast.”
The company also suggested that demand for clothing and homewares could be impacted by people spending their disposable incomes elsewhere, with a return to holidays abroad and other social activities.
However, Next said the first three months of the year had seen UK sales “ahead of where we expected them to be” as people headed back to its stores after lockdown and purchased more formal fashion as they returned to offices.
Emily Salter, an analyst at GlobalData, commented: “Though Next does not state this as a driver for reducing its forecast, the outlook for inflation is worse than in January when it gave its original guidance.
“Inflation has increased further, not least because of the impacts of the Russian invasion of Ukraine, and yesterday’s (spring statement) announcement will do little to ease the squeeze on consumers” discretionary incomes.”
