FTSE 100 retailer, which owns UK rights to US brands Gap and Victoria’s Secret, says prices could rise in autumn
Next has thanked warmer weather for an “unexpected” boost in sales, leading the clothing retailer to raise its profit forecasts for the fourth time this year.
The FTSE 100 company, which owns the UK rights to the US brands Gap and Victoria’s Secret as well as stakes in labels including Reiss and Joules, raised its expectations for full-year profits by £12m to £1.26bn.
It is the fourth time Next has raised profit forecasts this year, with the company having last ratcheted up its expectations in early August as Europe faced a series of heatwaves.
Next, which has more than 500 stores across the UK, said in a stock market update on Thursday: “The first half was much better than we originally anticipated, both in the UK and overseas.
“It is important to acknowledge that part of this overperformance has been the result of two unusually warm summers in the UK. The rest of the overperformance is, we believe, largely the result of fulfilling the aims we outlined at the beginning of the year.”
That has included some cost-cutting efforts, across Next’s warehouses.
Overall, total sales across the group were up 9% in the six months to July, helping push pre-tax profits for the half-year up by 11% to £566m.
Next said the performance over the past six months was “all the more unexpected given the strength of sales last year”. It made £1bn of annual profits for the first time in the year ending January 2025.
However, the retailer cautioned on the impact of the rising cost of living and prospects for the jobs market.
“Our primary concerns are rising inflation, higher mortgage interest costs and a weak employment market. These worries will only be compounded if they are accompanied by tax increases,” it said, in an apparent reference to John Healey’s first budget as chancellor on 28 October.
“It seems likely that it [the government] will have to increase taxes in order to fund its expenditure.”
While the group said it was deploying AI across the business, including its tech division, Next said it was ensuring fashion designs were still led by humans.
“In a world where AI is able to do more and more, our experience suggests that consumers prefer the authentic creativity of human beings,” it said. “That means we are putting more emphasis on designers using techniques that connect them directly to the artwork – painting, drawing, screen printing, etc. That is a big investment in time, and requires a higher level of creative talent than is needed to operate CAD [computer aided design] or prompt AI.”
Despite the strong results, the company lowered sales growth expectations in the UK, which accounts for three-quarters of total sales, from 2.8% to 2% for the six months to the end of January.
“We are looking at what’s ahead and it is sensible to moderate our expectations,” said the Next chief executive, Simon Wolfson. “We are not talking about [consumer spending] falling off a cliff. I think things are likely to get worse rather than better. Unlike in the past when the government has been able to help it doesn’t have any room for manoeuvre. It has a £100bn deficit. That means not only can we not expect the government to necessarily alleviate the problem, but potentially make it worse.”
He added that the escalation of hostilities in the Middle East has not preceded a further increase in further potential cost increases for Next.
“We are not expecting shipping costs to get higher, there is already a surcharge we are paying,” Wolfson said. “All those cost increases are baked in [since the start of the conflict in February], and if anything are not as bad as March.”
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “Next delivered its first-half results in style, with sales growth accelerating over the period and breezing past the fashion company’s original guidance. In the UK, hotter-than-expected weather and more effective marketing saw customers logging in to refresh their summer wardrobes online, helping offset a small decline in-store.”