Next warns of higher prices as costs riseon January 6, 2022 at 10:22 am

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The retailer says recent sales rose 20%, but wage, shipping and manufacturing costs are all rising.

Next model

Image source, Next

Next has said it will raise its prices this year to offset increased wages as well as higher shipping costs.

It said prices for its spring and summer clothing and homeware ranges would rise by 3.7% from a year earlier, while it expects a 6% increase for autumn and winter goods.

Its forecast came as it said sales for the three months to 25 December were up 20% compared with pre-pandemic 2019.

Next also upped its profit forecast for the year.

It now expects to make an extra £22m, taking annual profits to £822m, which would be nearly 10% higher than in 2019.

The retailer said sales in the final quarter of 2021 had been boosted by strong revival in “formal and occasionwear”.

Next’s online business saw sales soar by 45% from two years ago, whereas sales at its High Street stores were down 5.4%.

The company is forecasting sales of full-price goods to rise by 7% overall in 2022, but it warned that this year could see a tougher trading environment, given the financial pressures facing households, such as higher energy bills.

Next also said it was facing higher costs itself, hence the need to increase its prices by more than previously expected.

The company said it had seen higher shipping and manufacturing costs. Wage costs were also climbing as a result of the increase in the National Living Wage and because of staff shortages in some areas, “most notably in warehousing and technology”.

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Analysis box by Emma Simpson, business correspondent

Next is the first of the big retailers to tell us its Christmas story. And it’s had a strong one. The business had been expecting weaker growth, but it was much better than expected, adding an extra £70m of sales helped by a revival in adult formal and “occasionwear”. And this was despite lower levels of stock.

Online sales were up 45%, which more than offset falling sales in its stores. Even before the pandemic, more than half of the group’s sales were already online, making it well placed to benefit from the huge shift in shopping habits.

This performance puts Next firmly in the winner’s camp. It says forecasting the year ahead is unusually difficult. With soaring fuel bills and a rise in the cost of living, the big question is, how much discretionary spending consumers will be able to make?

It’s having to put up prices on products, too. But this is a retailer that’s better placed than most to cope with the cocktail of cost increases and challenges facing retailers this year.

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‘Mightily impressive’

Analysts praised Next for its performance, with the retailer also announcing a special dividend of 160p a share.

“For all the tales of woe on the High Street, there is one shining jewel to be found in the form of Next,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

“There aren’t many bricks-and-mortar retailers dishing out special dividends or upgrading guidance multiple times over.”

She added that Next had managed its business “very well – stock levels have reduced, and labour shortages didn’t derail performance”.

Richard Lim, chief executive of Retail Economics, said: “These are mightily impressive results and demonstrate the growing strength of the brand and its agility to operate through the ongoing challenges posed by the pandemic.”

However, he added: “The outlook for 2022 looks more challenging. For many households, this year will be a ‘pinch point’ as the combination of tax hikes and a rise in the cost of living erode incomes.”

Greggs names new boss

Next is the first major retailer to report on how it performed over the key Christmas trading period, although there were updates from other companies on Thursday.

  • Discount retailer B&M said its full-year profits were set to come in ahead of forecasts, with sales in the three months to 25 December up 14% from pre-pandemic levels. The company also announced its 24,000 staff would get an extra week’s wages as a bonus for their “considerable efforts this year”.
  • Greggs’ chief executive, Roger Whiteside, has announced he will be stepping down from the role later this year. He will be replaced by the company’s retail and property director, Roisin Currie, The news came as Greggs said sales at its stores had eased in the run-up to Christmas amid the rise of the Omicron variant. Like-for-like sales for 2021 were down 3.3% compared with the pre-pandemic levels of 2019, but in the fourth quarter, they were up 0.8%.
  • Homeware retailer Made.com reported a 38% rise in sales during 2021 to £434m. Boss Philippe Chainieux said he was “delighted” with how the business was performing, adding that measures it had implemented were now easing the impact of “industry-wide supply chain issues”.
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