No sign of Brexit fallout at retailer Next – but prices will have to rise next year
Shares in Next have popped at the open after it said it was yet to see signs the UK's vote for Brexit was weighing on consumer spending in its stores, but warned prices look set to rise in 2017 after sterling's dramatic depreciation.
The business, which is seen as a bellwether for the health of the UK high street, said it is fully hedged against movements in currency for the rest of the year, though overall the costs of its clothes could rise by an average of five per cent in 2017 if sterling stays around its current level against a basket of currencies.
In a trading update this morning, Next reiterated its expectations that profits would fall this year as it cited a "tough… consumer environment". The group's new guidance is for profits to come in somewhere between £775m and £845m before tax in 2016 – that would be somewhere between a 5.6 per cent fall and a 2.9 per cent rise.
So far this year, total sales are up by 1.8 per cent, led by a jump in "directory" sales and a fall from its physical stores. The improved performance in the second quarter of the year sent Next storming up the FTSE 100, with a 3.8 per cent climb in early morning trading.
Read more: Retail sales have fallen by their biggest amount since Christmas
"With only a few weeks since the EU referendum it would be unwise to draw any firm conclusions of the effect the decision to leave the EU will have on UK consumer demand," Next said today.
It added: "So far, we can see no clear evidence of any appreciable effect on consumer behaviour, apart from the first few days after the vote."
Next also said it stood ready to "expand" its warehouses and operations in continental Europe "in the unlikely event that fulfilling sales from the UK becomes less efficient".
"Although it is very early in the buying cycle, we currently estimate that cost prices in 2017/18 will rise by less than five per cent on like-for-like products," Next said.
Immediately after the UK voted to leave the EU, shares in Next dropped by 21 per cent. They are currently trading around £50 – down from £80 this time last year.
Away from the EU referendum, Next said it had seen a more general deterioration in "consumer demand for clothing" since October 2015 as unseasonable weather led to "extreme volatility" in sales figures. The clothes retailer added it was hoping for a cold winter to boost its full-year earnings as shoppers rush to buy coats, hats and gloves.