Next lifts sales and profit guidance as inflation fears ease

● Upbeat outlook comes despite slide in half-year profits and high street takings

High street bellwether Next has upped its earnings outlook after “encouraging” trading, sending its shares sharply higher.

The fashion chain hiked its sales and profit guidance yesterday as its chief executive hinted that the worst of the Brexit-fuelled price increases on the high street may be over, despite continuing concerns over inflation.

Lord Wolfson – a prominent Brexit supporter – said the impact of the EU vote on sterling “doesn’t look like it’s fuelling an inflationary spiral and is passing right through”.

He said 2018 would see an end to price rises, with the group predicting a more stable backdrop from next autumn.

Shares jumped 13 per cent to close at 4,991.36p last night after the group said trading had turned a corner following a difficult start to its half year. Pre-tax profits were down 9.5 per cent to £309.4 million in the six months to the end of July.

Next has been helped by the warmer weather over the summer, together with an overhaul of its product ranges and online offering, meaning that total full-price sales rose by a better-than-expected 0.7 per cent in its second quarter to 29 July.

Total sales across its high street stores, including markdowns, fell by 8.3 per cent over the first half overall, while directory sales rose 5.7 per cent, leaving total sales 2.3 per cent lower.

It said sales could fall by up to 2 per cent or rise by 1.5 per cent over the year, having previously warned of a fall of up to 3 per cent.

George Salmon, equity analyst at Hargreaves Lansdown, said: “While the high street business continues to splutter, Next’s Directory divisions seems to have turned the corner.

“The sunny weather of the last few months is lending a helping hand, but the decision to spend £11m on refreshing the website, including the recruitment of 121 extra systems and marketing staff, looks like it is paying off.

“This positive tone continues through the results. While special dividends are still the main means of returning surplus cash to shareholders, Next is now proposing a buyback too.”

Mike van Dulken, head of research at Accendo Markets, added: “First-half performance was poor to say the least with retail profits -33.3 per cent on retail sales -8.3 per cent. However, this was in line with already cautious guidance.

“Encouraging, less challenging trends over the last three months (directory sales growth even stronger in Q2) has left management confident enough to be more optimistic about the rest of the year.”

Next is forecasting full-year profits of about £717m, up from previous guidance of £710m, although this would still mark a drop on the year before.

Wolfson said it was “not impossible” that the group’s high street sales could rise again in its third quarter.