Next hails ‘zero-inflation’ era as it pledges not to raise shop prices

NEXT has vowed not to raise prices this year, as easing cost pressures have ushered in a period of “zero inflation”.

The high street chain, seen as a bellwether for the retail industry, made the pledge in a trading update yesterday, in which the business also raised its profit forecast.

It is the fifth time in seven months that Next has upped its guidance. It now expects profits before tax to come in at £905m, a 4pc rise year on year. It had been expecting profits of £795m, before its first upgrade last June.

It is also expecting record full-year sales of £4.78bn. The boost to forecasts helped send shares higher with it ending yesterday up 5.8pc at an all-time high, the biggest riser on the FTSE 100.

Last year, shares rose by more than 30pc, as Next managed to navigate cost of living pressures on the high street. It also snapped up rivals that had struggled to stay afloat over the period, buying brands including Cath Kidson, Joules and Made.com, although Next said it would resist the temptation to grow through a series of acquisitions.

Next is expecting higher profits as cost inflation ebbs away, buoying shoppers who have faced rising prices at the tills for years.

Next said it was the first time in three years that its costs had stabilised, which it said will allow it “to maintain zero inflation in selling prices”.

The pledge to keep prices steady comes despite an expected increase in its wage bill this year, including a £25m hit from the National Living Wage rise.

Next said it would have been able to lower prices had it not been for higher wages. Overall wage inflation will come in about £60m, Next said, which it will mitigate partly by not passing through all the fall in factory gate prices.

Its latest profit upgrade followed a stronger than expected performance over the festive period, with sales accelerating in the last two weeks before Christmas, up 10pc in each week compared with last year. Over the nine weeks to Dec 30, its full-price sales were up 5.7pc, which was £38m better than it had expected.

Next said the decision to raise forecasts also came amid a consumer environment that looked “more benign than it has for a number of years”.

Increased wages will also benefit sales. The retailer said: “For many consumers, this will ease the pressure they have felt on their cost of living for the past 18 months.”

However, it said there were also potential risks on the horizon. This included being caught in the Suez canal disruption, which Next warned would cause delays to stock arriving if the difficulties in the region continue.

Lord Wolfson, the chief executive, said the issues would add “another two to two-and-a-half weeks to lead times in terms of getting stock to the UK”.

He said: “Because the ships have to travel further, there will be some level of surcharges.” He added that products such as clothes from the Far East would be affected: “It will impact on sales if this persists for a long time, but not dramatic levels.”

Other retailers have issued similar warnings, including Ikea, which last week said there could be some constraints for certain products.

Shipping giant Maersk earlier this week paused all trade through the Red Sea following attacks by Iran-backed Houthi rebels.

At the time, Marco Forgione, director general of the Institute of Export and International Trade, said: “It is inevitable that we will see the price of products on our shelves being impacted.

“Transportation and shipping insurance costs have skyrocketed – doubling over the past few weeks.”