Next Plc raised its guidance for the second time in recent months after wet weather and sticky inflation failed to deter shoppers from buying fashion.
Full-price sales in the second quarter rose nearly 7% on last year, according to the company’s earnings report Thursday. That has driven Next to increase its forecast for profit before tax by £10 million ($12.7 million), to £845 million, this year.
Next shares rose slightly in early trading in London.
The UK clothing retailer already raised its guidance in June, saying that consumers were buying more clothing thanks to salary increases and warmer weather. The company is often considered a bellwether for the health of Britain’s retailers.
There are some signs inflation in the UK is waning. Prices in UK stores fell for the first time in two years in July, the British Retail Consortium said Tuesday.
Still, higher mortgage rates threaten to erode consumers’ disposable income. Next’s guidance also implies a slowdown in the second half, indicating the company expects consumers to be less willing to spend their cash, Jefferies analyst James Grzinic wrote in a note to clients.
Outside of the UK, European apparel makers and retailers have been reporting mostly positive results this earnings season. German clothing retailer Hugo Boss AG raised its earnings and sales forecasts Wednesday. Last week, Puma SE reported earnings that topped analysts’ estimates. However, German online retailer Zalando SE narrowed its guidance for the year on Thursday after booking lower revenue in the second quarter, citing challenging market conditions.
Next made an extra £16 million of full-price sales in the last six weeks and the retailer is also encouraged by better clearance rates in its end-of-season summer sale.
What Bloomberg Intelligence Says:
Next’s 2H revenue-growth guidance remains prudent at 0.5%, even against easier comparisons, so there’s the potential for further upgrades as Next’s mix of stores and online appear attractive to shoppers.
— Charles Allen, BI retail-industry analyst
Next Tunes Into Shoppers; Sales Strength Boosts Profit: React
The company has about 500 stores in the UK and Ireland plus a large online division offering Next’s own range of fashion as well as third-party brands in the UK and in other countries.
Next has benefited from buying weaker rivals during the inflation crisis. Earlier this year the retailer bought fashion and homeware brand Cath Kidston out of administration and last year it purchased fashion chain Joules and furniture brand Made.com.
(Updates with share move, details from statement and context from third paragraph.)