Next PLC (LSE:NXT) gave investors some good and bad news as it updated on trading today with strong Christmas sales offset by a warning that profits would fall in 2023/24.
Trading in the nine weeks to 30 December 2022 was strong with full price sales up +4.8% versus last year, which was around £66mln better than the retailer’s previous guidance of a 2.0% fall for the period given in November.
As a result, the FTSE 100-listed group has increased its 2022/23 full-year profit before tax guidance by £20mln to £860mln, up +4.5% versus last year with EPS seen at 567.2p, up +6.9% versus last year.
Retail sales were particularly strong in the period, up 12.5%, with online sales 0.2% higher, while the end-of-season sale is progressing well and clearance rates are ahead of expectations.
But the clothing seller was cautious as it looked ahead to the coming year, expecting full price sales to fall 1.5%, taking pre-tax profits down 7.6% to £795mln.
The company forecast that inflation in essential goods, particularly energy, rising mortgage costs and continued price inflation would dampen demand.
Cost price inflation on like-for-like goods is expected to peak at around 8% in the Spring Summer season with inflation to be no more than 6% in the second half, the group said.
With an intention to maintain its bought-in gross margin percentage, the group expects selling prices to rise 8%.
Together with a forecast £119mln of cost increases, mainly labour and energy bills, this has led the retailer to forecast the fall in profits in the year to January 2024.
The group does expect to return £220mln to shareholders in share buybacks in the year ahead which should boost EPS by +2.7%.
However, this enhancement is more than offset by the increase in the Corporation Tax rate, which reduces EPS by -6.8%, giving an annual forecast for post-tax basic EPS of 501p, down 11.7%.