Next cheers better-than-expected Christmas but warns over tough year ahead

It had previously guided for a 2 per cent fall in sales over the festive period.

Shares in the group jumped more than 7 per cent higher as Next said it now expects full-year sales of £4.6bn, up 6.9 per cent on the year before, and for pre-tax profits to rise 4.5 per cent to £860m against the £840m it pencilled in last November.

But the fashion group said the year to January 2024 would be tougher as the cost-of-living crisis bites, guiding for pre-tax profits to fall 7.6 per cent to £795m on sales 1.5 per cent lower.

It said the group remains “cautious in our outlook for the year ahead”, pointing to consumer demand being impacted by the cost-of-living and energy crisis, rising mortgage costs and its own price hikes.

Further price rises are also expected and set to peak at about 8 per cent in the spring, but will ease back thereafter to “no more than” 6 per cent in the second half as currency pressures and freight costs decline, Next predicted.

Speaking to the PA news agency, chief executive Lord Simon Wolfson said festive trading was given a boost by pent-up demand after an unseasonably warm autumn.

But he added consumer spending was also better than predicted in the face of painful cost pressures.

He said: “Employment has held up very strongly – that’s unusual in a recession.

“That has given people the confidence to spend through the Christmas period.”

He said shoppers were also dipping into savings built up in the pandemic, while also keeping a tight rein on their energy usage to try and keep bills down.

However, he cautioned: “Next year is going to be a difficult year.”

Prices, which are already rising by about 8 per cent, will remain at the same level into spring and summer, but fall back thereafter with further declines “almost certain” in the early part of 2024.

“There is going to be continued pressure on prices, but we can see light at the end of the tunnel,” said Lord Wolfson.

Richard Hunter, Head of Markets at interactive investor, commented “After a strong finish to the year Next has restored its previous pre-tax profit estimate, after a downgrade at its half-year numbers which blighted the share price."

He added: “It has long been observed that in general, Next updates err on the side of caution. As a result, more often than not, the company can then under-promise and over-deliver.

"In terms of its outlook for the next financial year, the group has remained true to form and is estimating full price sales declining by 1.5 per cent and a pre-tax profit number of £795m, which would represent a decline of 7.6 per cent on this year’s number, and which will have taken some of the shine from this particular update.”