Next raises profit outlook for fifth time after strong Christmas

2/2 © Reuters. FILE PHOTO: People walk past a store of clothing retailer Next, in London, Britain, December 2, 2021. REUTERS/May James 2/2

By James Davey

LONDON (Reuters) -British fashion retailer Next raised its full-year profit outlook for a fifth time in 10 months after beating guidance for sales in the run-up to Christmas, boosted by an unexpected revival in demand for adult formal and occasionwear.

As the first major UK retailer to update on Christmas trading, Next set a high bar on Thursday for rivals as it reported a 20% rise in full-price sales in the eight weeks to Dec. 25 versus the same period in 2019 before the pandemic began.

Guidance had been for a rise of 10.2%.

Next did, however, caution that pressures on consumers' finances, such as higher food prices, energy costs, mortgage rates and taxes, pointed to a tougher trading environment in 2022.

It also flagged that its own prices would rise 3.7% in the first half of 2022 and 6% in the second half due to higher freight rates and increased manufacturing costs.

Shares in the group were down 1.4% at 1018 GMT, paring year-on-year gains to 5%.

Next, which trades from about 500 stores and online, had expected sales growth in its fourth quarter to be weaker than the third.

However, it said a strong revival in NEXT branded adult formal and occasionwear significantly improved sales throughout the period.

That was despite lower than planned stock levels due to supply chain issues and some degradation in delivery service levels due to labour shortfalls in warehousing and distribution.

It forecast a full-year 2021-22 pre-tax profit of 822 million pounds ($1.1 billion) up from the 800 million pounds previously guided and up 9.8% versus 2019-20.

Next has proved a resilient performer during the pandemic, benefiting from its long-established online operations.

Rivals with weaker or no online business, notably Primark, have seen large falls in sales. Others, such as Topshop-owner Arcadia, and Debenhams went bust.

Next's total online sales rose 45% in the eight week period, more than offsetting a 5.4% fall in UK and Ireland store sales.

For the year ending January 2023, Next forecast full price sales growth of 7% versus the current year ending January 2022, with pre-tax profit up 4.6% at 860 million pounds.

Next also declared a further special dividend of 160 pence per share, worth 205 million pounds, to be paid at the end of January and said it intends to return to its pre-pandemic dividend cycle in the 2022-23 year.

($1 = 0.7400 pounds)