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Next prices may rise as weak pound pushes up costs

By Holly Williams

Published 04/08/2016

A model in an outfit from Next’s autumn 2016 range
A model in an outfit from Next’s autumn 2016 range

High street clothing giant Next - which has more than 20 stores across Northern Ireland - warned it may have to hike prices in the face of soaring costs, due to the pound plunging in value since the Brexit vote.

Lord Wolfson, chief executive of Next, said the group may be forced to put up price tags next year, but said any rise was likely to be "less than 5%".

Next estimated that importing clothes from overseas suppliers will push up costs in the year to the end of January 2018 by up to 5%.

The comments came as Next posted another fall in full-price sales at its high street stores - down 3.3% for its retail shops in the second quarter to the end of July, while its Next Directory arm saw sales rise 5.7%.

But the drop was not as bad as the company had feared, while a robust end-of-season sale performance also helped limit the fall in total store sales, including markdowns, to 0.7%.

Lord Wolfson - who backed the Brexit campaign - said there had been no clear evidence of a hit to consumer confidence since the vote to leave the EU, although he cautioned that trading conditions will remain tough for the rest of the year.

He said: "We've seen evidence of a consumer slowdown since October.

"The Brexit vote hasn't really altered consumer confidence - the consumer environment was tough before the vote and remains tough," he added.

The group is expecting sales falls to worsen in a "particularly challenging" third quarter as it also comes up against tough comparisons from a year earlier, although the all-important Christmas season may see some improvement after mild weather hit the end of 2015/2016.

Next said it had been able to protect itself against falls in the value of the pound for the current year to January 2017, but that its input costs could rise by around 9% for the next financial year.

It is hoping to offset much of this, partly by increasing product buying from areas such as Bangladesh, Cambodia and Burma, while improved sourcing in China may also help.

But the group warned its costs will nevertheless rise by up to 5% for 2017/18, even after taking action to limit the impact.

Lord Wolfson said: "If you see increases in cost prices, then it will translate into higher selling prices."

Next was forced to put up its price tags by around 8% in 2010 when the pound plunged against the US dollar, sending the price of cotton surging.

Shares in the group rose 4% on the better-than-feared second quarter performance, which marks an improvement on the 4.7% plunge it saw in its high street stores in the previous three months.

The stock was also buoyed as Next said the worst-case scenario for annual profits was now not as bad as expected, pencilling in a range of £775m to £845m.

This would mean profits could fall by up to 5.6% or rise by as much as 2.9%. It had previously warned that profits could tumble by up to 8.9%.

Next also narrowed its forecast for full-price sales. The clothing retailer said it would be in the range of 2.5% lower to 2.5% higher, from a previous range of 3.5% lower to 3.5% higher.

Belfast Telegraph

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