Next buoyant despite Red Sea cargo warning
◆ The high street giant had a good festive season – but others, such as JD Sports, have not been so lucky, writes Scott Reid
Updates from retail heavyweights come as concerns mount across the sector over the impact of the Red Sea shipping woes, with UK shoppers facing potentially higher prices and delays to stock.
It was a tale of two traders after Next hiked its profit outlook for the fifth time in less than a year following better-thanexpected festive sales, while JD Sports downgraded the amount of profit it expects to make this year.
Fashion giant Next – which has become more of a standout high street survivor than a retail bellwether – saw its fullprice sales jump 5.7 per cent over the nine weeks to December 30, with growth of 10 per cent in both of the final two weeks before Christmas Day. It is now forecasting full-year sales to rise by 4 per cent as it said January trading is also set to be better than expected.
Shares in the group were given a lift after it upped its profit forecast to £905 million for the year to January 27, which would be a 4 per cent rise on 2022-23 and compares with guidance for £885m given in November.
The retailer, which also operates a well-established online store, is also predicting a 5 per cent hike in underlying group pre-tax profits to £960m for the year ahead on full-price sales up 2.5 per cent, or 6 per cent including recent acquisitions.
This is a standout performance in a sector battling a cost-of-living crisis and soaring costs – though there was a potential sting in the tail as chief executive Lord Simon Wolfson warned that attacks on container ships in the Red Sea were likely to delay stock deliveries and affect sales if they continue to disrupt the vital Suez Canal shipping route.
He noted that it could take another two to two-and-a-half-weeks for its stock to reach the UK if ships are forced to continue bypassing the Red Sea.
Concerns are mounting across the retail sector over the impact of the Red
Sea shipping woes on costs, with fears it could push up prices for UK shoppers. Next forecast that its prices would remain flat over the year to January 2025 as it said its own costs were set to be stable for the first time in three years. But Wolfson said cost pressures, such as higher wage bills due to the increased National Living Wage, meant it would not be able to lower prices.
Aarin Chiekrie, equity analyst at financial platform Hargreaves Lansdown, said Next’s Christmas trading update had given investors “plenty to be jolly about”, adding: “Successfully keeping full-priced sales front and centre to avoid discounts is one of the reasons
The retail industry is rarely given a clear run and events over the next year could yet provide more obstacles
Next can boast some of the best margins in the sector. But it’s a tricky strategy to nail, especially alongside expanding its online presence and introducing thirdparty brands to its offering.”
Meanwhile, Richard Hunter, head of markets at Interactive Investor, noted: “Next is a master of the ability to under-promise and over-deliver, and this update is the latest illustration as it raises its profit guidance for the fifth time this financial year.
“Notwithstanding the potential bumps in the road, Next has observed that the consumer environment looks more benign than it has done for several years and an ability to pass on marginal price increases if necessary is proof of its established position.
“That being said, the retail industry is rarely given a clear run and events over the next year could yet provide more obstacles. In addition, the current difficulties around the Red Sea and the Suez Canal could impact the supply chain if they persist.”
Next said trading in the run-up to Christmas was better than expected across its stores and online, with sales up 0.6 per cent and 9.1 per cent respectively in its Christmas quarter to December 30. It said consumers are set to be boosted in 2025 as wages finally outstrip inflation.
In contrast, sportswear and trainers giant JD Sports struggled to tempt wary customers even during the crucial Christmas period, forcing it to downgrade the amount of profit it expects to generate this year.
Shares in the retailer – which also owns
the Scottish outdoor business Tiso – came under pressure after it warned it would pocket more than £100m less than previously thought in part to what it called “increased promotional activity” across the sector. It said the “peak trading season” was softer and had more promotions than bosses had anticipated.
Chief executive Regis Schultz told investors: “Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share.
“We are confident in our strategy and we continue to invest in our supply chain, systems and stores, supported by our strong cash generation and healthy balance sheet.”
Pre-tax profit is now expected to be in the region of £915m to £935m in the year to early February, down from previous expectations of £1.04 billion.
In a market reaction note entitled “King of Trainers Dethroned”, Steve Clayton, head of equity funds at Hargreaves Lansdown, said: “JD Sports, the self-proclaimed King of Trainers, is looking rather dethroned after issuing an unplanned trading statement. JD says that sales have grown by less than expected as pricing in its markets became more promotional.
“Margins have suffered as a result and analysts are lopping about 10 per cent off their current year forecasts and seem likely to take at least as much off their projections for beyond this year. The shares tumbled by 20 per cent in early trading.”