Belfast Telegraph

Next reports 1.5% profits slide in 'challenging and volatile' market

High street giant Next posted lower first half profits after seeing store sales slide and warned trading has remained "challenging and volatile".

The chain posted a 1.5% drop in pre-tax profits to £342.1 million for the six months to the end of July, dragged lower by a 16.8% tumble in earnings across its retail shops.

An impressive end of season sale performance in July helped buoy trading towards the end of the first half, but the group dashed hopes of a bounce-back in consumer spending since the EU referendum.

Chief executive Lord Wolfson said: "We do not believe that July trading represented any change in underlying consumer spending patterns.

"Trading since July, which to some extent may have been affected by the sale, has remained challenging and volatile."

He added: "It has been a challenging year so far, with economic and cyclical factors working against us, and it looks set to remain that way until mid-October at the earliest."

Lord Wolfson said the September heatwave has done little to help clothing retailers.

He said: "Consumers are only buying clothes when they need to. In this weather, no one's buying winter clothes."

The group is bracing itself for a difficult quarter to the end of October, saying it is set to be the "toughest" of the year as it comes up against tough comparatives.

But the all-important Christmas season may see some improvement after mild weather hit the end of 2015/16, according to Next.

The group also repeated warnings first made last month that it may have to hike prices by up to 5% next year to offset the sharply weaker pound since the Brexit vote, which will push up the cost of importing clothes from overseas suppliers.

Next said this could hit sales further, knocking between 0.5% and 1% off like-for-like figures.

Its gloomy comments were echoed by rival John Lewis Partnership, which posted a 14.7% slide in half-year pre-tax profits to £81.9 million, citing "deep structural changes in the retail market".

John Lewis chairman Sir Charlie Mayfield said it was not as a result of the EU referendum, but "far-reaching changes taking place in society, in retail and in the workplace".

Next has been cautioning over retail prospects for a number of months, warning of a consumer spending shift away from clothing.

It said in March that consumers were instead splashing out on eating out and travel, warning the current financial year was set to be its worst since the financial crisis.

But Lord Wolfson has said there has been no clear evidence of a worsening in trading directly as a result of the referendum decision.

In an update last month, Next surprised the market with a better-than-feared second quarter performance, with a robust end-of-season sale helping limit the fall in total high street store sales, including markdowns, to 0.7%.

Over the half-year, full-price sales were 4% lower, while total retail sales were down by 0.7%.

The group nudged up its full-year profit forecast in August, to a mid-point of £810 million from the £800 million previously guided.

Shares in Next dropped 5% after its interim results.

George Salmon, equity analyst at Hargreaves Lansdown, said: "Next's results show in real time the changing habits of the UK consumer.

"With its stores reporting falling sales, Next is dependent on the online Directory business for growth. Unfortunately, as competition intensifies online, their Directory division has come under pressure too, meaning the shares have spent 2016 going backwards."