Next cuts profit forecast as war, inflation knock confidence

Bloomberg

Next Plc lowered its profit and sales guidance for this year as the war in Ukraine and record inflation in Britain dimmed the retailer’s outlook.
The clothing and housewares chain forecast a profit of 850 million pounds ($1.1 billion) in the year through January, a 10 million-pound drop on a previous estimate, in a statement. Often considered a bellwether for the state of British retail, Next’s more bearish outlook comes despite recent revenue in the UK being better than expected.
“It is hard to recall a time when sales have been harder to forecast,” Next said as it indicated that inflation in selling prices could hit 8% in the second half, up from a 6% forecast in January.
Next, which operates hundreds of stores and has a large online business, emerged as one of UK retail’s main lockdown winners with the company raising last year’s profit forecast five times. Now the chain is feeling the impact of closing its websites in Ukraine and Russia and at home consumers are less likely to spend on clothes as they face a growing cost-of-living crisis with surging petrol and energy bills.
Next expects only 5% full-price sales growth this year, down from a more optimistic forecast of 7% in January. The reduction is partially due to about 65 million pounds of lost sales from its closed websites in Ukraine and Russia. It also cut sales expectations in other overseas territories by 70 million pounds.
Although the UK performance lately is strong, the biggest negative for Next’s sales growth going forwards is the “drain on consumers’ pockets from inflation on essential goods,” Chief Executive Officer Simon Wolfson said by phone.
Government data showed that Britain’s inflation rate reached a new 30-year high of 6.2% last month, triple the Bank of England’s target.
Next will work hard to run the company efficiently so that rising operating costs aren’t passed on to the consumer, but “there’s not a huge amount we can do to control” passing on higher prices from factories, Wolfson said.
Wolfson urged the government to do more to increase the underlying supply of goods, energy and skilled workers in Britain.
“Ultimately the only way that we are going to solve a problem of a shortage of goods, of labour, of fuel, of housing is to increase the supply of those things,” he said.
“There are measures the government can take to increase the supply. As yet we haven’t seen any of those measures being taken.”