Next upgrades profit guidance and calls for Brexit clarity
Next raised its guidance for annual profit after the fashion retailer’s trading in August and early September was better than expected.
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Group pre-tax profit will be £727m in 2018, broadly in line with £726.1m the year before, Next predicted. The company had previously guided that profit would fall to £717m.
Pre-tax profit in the six months to the end of July rose to £311.1m from £309.4m a year ago, Next said as it called on the government to clarify arrangements for tariffs and ports in a no-deal Brexit.
Next’s chief executive Simon Wolfson said when Next last updated investors in August he expected sales gained in July’s hot weather to give way to losses in August. That did not happen, though the profit was short of the £315.3m expected by analysts.
But Wolfson stuck to his belief that Next’s first-half performance was flattered by the summer heatwave. He said trading on the high street was tough and would stay that way.
“The UK retail market remains volatile, subject to powerful structural and cyclical changes. Many of these headwinds have not abated,” Wolfson said. “As expected, sales in our stores (which now account for just under half of our turnover) continue to be challenging. We remain cautious in our outlook for the rest of the year.”
Next laid out its plans for Britain leaving the EU with no deal in March 2019. An orderly Brexit is in the interests of the UK and the EU but with doubts increasing about this prospect Next is preparing for a no-deal Brexit.
Wolfson, who backed Brexit, said extra costs would be minimal and called on the government to clarify its intentions on tariffs. The biggest risk to Next is if UK ports cannot cope with extra work and it is unclear how prepared the country will be, he said.
Wolfson said: “There are significant challenges involved in preparing for a no-deal outcome and we would not want to understate the work we are doing to prepare for this eventuality. However, we do not believe that the direct risks of a no-deal Brexit pose a material threat to the ongoing operations and profitability of Next’s business here in the UK or to our £190m turnover business in the EU.”
He said the biggest upheaval in retail was shoppers shifting online. Sales at stores open a year or more fell 32% in the first half while total retail sales fell 6.9% to £925.1m. Online sales rose 16.8% to £892.3m. Retail profit fell 23% to £73.2m as online profit rose 21.2% to £163.3m.
We are often asked: "What will the high street look like in 10 years' time?" Wolfson said. “The only honest answer to this question is that we do not know; we can see the general direction of travel but can predict neither the speed nor endpoint for the changes that lie ahead. “