Next profit warning implies difficult Christmas for high street retailers

Next, often seen as a bellwether for the high street, warns on outlook for 2017 after sales fell in the run-up to Christmas as consumers curtailed spending on fashion and clothing.

Full-price sales for the 54 days to 24 December were down by 0.4 per cent. While this was an improvement on the third quarter, when sales fell by 3.5 per cent, Next says it was expecting growth due to its weak performance in the final quarter of 2015. Its also worth noting that its predominantly online directory arm showed a rise in sales of 5.1 per cent.

Sales during its end-of-season sale, which runs from Boxing Day and typically pulls in customers, fell by 7 per cent, said by the company to have cost it £3 million.

The poor sales have caused Next to cut its profit forecast for the year to the end of January to £792 million, at the lower end of its previous forecast of between £785 million and £825 million. Next says it expects a “cyclical slowdown in spending on clothing and footwear” to continue into 2017, with added pressure coming from the national living wage, business rates reevaluation and increased energy taxes.

It also expects its results to be hit by a further squeeze on general spending due to inflation. That is backed up by new research from retail analysts Retail Economics, which found that 48 per cent of consumers think they will have less spending power in 2017 than last year.

The devaluation of the pound will also hit revenues as prices rise. Next predicts that the price of like-for-like garments will increase by “no more than 5 per cent”, causing sales revenue to drop by 0.5 per cent.

Next is the first of the big high street retailers to lay out its Christmas trading and the figures are likely to be a sign of things to come. The gloomy outlook has hit shares at other fashion retailers, including Marks & Spencer, Debenhams and Burberry.
M&S and John Lewis are set to reveal their Christmas trading figures next week, as are Tesco, Sainsbury’s and Morrisons.