Next shares slide on profits warning

Next has warned full price sales will fall around 1.5% this year and profits are set to drop 7.6% to £795 million

Next unveiled record full-year figures for 2022 but warned of a “difficult year” ahead for the retailer. The retailer posts strong 2022 results but says profits will fall by 10% this year

Total trading sales increased by 8.4% compared to the previous year to £5.1 billion. Full price sales rose by 6.9% during the period, while pre-tax profits increased by 5.7% to £870.4 million - £10 million more than the companys previous forecasts.

Next, seen as one of the bellwethers for the U.K. retail industry, warned of a “challenging” year ahead as rising inflation erodes earnings growth and squeezes consumer spending.

It said the price of clothing could rise “by no more than 5%” following the fall in the value of the pound last year after the U.K. voted to leave the European Union. It added that this would lower sales by around 0.5%.

Next: prices to fall by 1.5% this year

However, while Next is maintaining its earnings guidance for 2023, it warns that prices are expected to fall by 1.5% this year and profits will drop around 10% to £795 million.

While cost input inflation continues, the company says that like-for-like selling price inflation is likely to be “more benign” this year, coming in at around 7% in the Spring and Summer season and 3% in Autumn and Winter. Freight costs are falling, meaning that the retailer will not need to push through such significant price increases.

The shares fell 8% on the day of the results to 6,202p but recovered some ground, recording a fall of 5% overall.

Next details investment proposition

Meanwhile, the retailer outlined its investment proposition for the next few years. It is looking to increase its overseas footprint, where it believes there are further expansion opportunities, and leverage its Total platform, through which it sells products online from other brands, including JoJo Maman Bébé, GAP and Reiss.

Nexts management believes that, despite the immediately difficulties expected this year, the company is in a strong position. It says that it has “far more ideas and opportunities for long-term growth than it has had for some time.”

“While the year ahead looks very challenging, we are not facing the kind of long term structural obstacles that we have overcome in the past eight years,” the company added in its results statement.

Analysts at broker Peel Hunt think the company has further growth prospects at home too. “Next remains one of the UKs leading fashion platforms, but is still only serving c.25 per cent of households,” they wrote. Meanwhile, analysts at Liberum have a buy recommendation on the shares and a price target of 7,500p.

Next shares are up 8% over the past 12 months but are still trading below their five-year highs of 8,440p last seen in December 2021.

The retailer is a good quality company and is better-placed than many of its peers to withstand the current tough economic times. As such, the current dip looks like a buying opportunity over the long-term.

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