UK clothing and homewares retailer Next updated its trading guidance in an unscheduled announcement today (19 June) where it reported the full-price sales from the first seven weeks of its second quarter (Q2) were up 9.3% in comparison to last year.
This stands in stark contrast to its previous guidance, which predicted a decline of 5%.
The retailer said it smashed its full-price sales estimates by £93m ($119m) attributing this over-performance to two factors:
- Change in weather – The onset of warmer weather has made a significant difference to the brand’s performance, particularly coming after a wet and cold April
- Annual salary increases – In an inflationary environment, annual salary increases deliver a significant uplift in real household income at the time they are awarded. Next said it does not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards.
However, Next explained if pay rises and sudden changes in weather contributed to its over-performance, it was also reasonable to expect that this effect will diminish over time because the UK is still facing ongoing inflation.
Apparel analyst comments on Next’s positive performance
GlobalData apparel analyst Emily Salter pointed out Next’s results highlight a wider positive trend for fashion retail. She explained GlobalData forecasts non-food spending to grow by 0.4% in the UK moving forward despite high inflation and weak–albeit improving–consumer sentiment.
She continued: “In what seems to have become a trademark move for the retailer, Next has once again surpassed its own expectations, with full price sales rising by 9.3% in the first seven weeks of its Q2 FY2023/24, a sharp contrast to its previous guidance of a decline of 5%. It has also increased its full-year guidance from a 1.5% fall in full-price sales to a 1.4% rise.”
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Salter believes Next has benefitted from consumer spending, whether it is a part of their savings or by the proliferation of buy now, pay later schemes.
Additionally, she said that with its wide range of brands giving consumers the options to trade up or down, and its leading online proposition and credit options, Next has retained shoppers so far in 2023, and this looks set to continue.
The retailer said it is not anticipating its current performance to continue at the same momentum moving forward and shared a moderately improved guidance for the rest of the year.
Based on the update, its revised full-year guidance forecasts full-price sales to grow by 1.4% (£4.67bn) and profit before tax to fall by 4.1% (£835m).
This was after the retailer reported a solid full-year performance in March and revealed better-than-expected annual profits for the year ending 2023, up nearly 6%, while full-price sales grew almost 7% on last year.