Next Slumps on Guidance Cut After Weak Summer
By Geoffrey Smith
Investing.com -- Shares in Next (LON:NXT) slumped on Thursday to its lowest in more than two years, as the U.K. fashion chain cut its outlook for the second half of its fiscal year after a disappointing summer and warned of a second 'cost-of-living crisis' in the U.K. next year.
"August trade was below our expectations and cost of living pressures are set to rise in the coming months," the group said in a half-year update, although it noted that sales had improved in September and added that "we may see benefits from recent Government measures."
By 03:40 ET (07:40 GMT), Next stock was down 9.0%.
The company now sees full price sales falling 1.5% from last year's levels in the second half, having earlier expected a rise of 1%. As a result, full-year profit is now expected at 840 million pounds ($906 million), a cut of 20 million pounds from its earlier guidance. That translates into a 2.7% increase in full-year earnings per share.
It said three factors were at work behind the 3.1% annual drop in sales in August: the heatwave, which came after its summer sale season when consumers no longer wanted to buy summer clothes, a greater-than-usual exodus abroad for holidays, reflecting pent-up demand from the pandemic, and the slow erosion of consumer confidence due to rising energy prices.
The changes to the company's forecast numbers were relatively mild - Jefferies analysts called them a "slight trimming" - in comparison with Chief executive Simon Wolfson's broader - and much gloomier - take on the U.K. economy in general.
"The devaluation of the Pound looks set to prolong inflation, even once factory gate prices ease," Wolfson wrote in one of his signature summings up. "It looks like we may be set to have two cost of living crises: this year, a supply side led squeeze, next year a currency led price hike as devaluation takes effect."
That devaluation is likely to outweigh tentative positive signs that global, supply-side driven inflation is easing. Wolfson noted that clothing factory gate prices are starting to come down, but since they price their goods in dollars, the pressure on Next's profit margins is likely to remain strong.
"Inflation in our cost prices looks set to continue throughout next year, indeed it may get worse in the second half of 2023," Wolfson wrote.
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Next Slumps on Guidance Cut After Weak Summer