Next forecasts bigger profits after hot weather lifts sales

Next has thanked warmer weather for an “unexpected” boost in sales, leading the clothing retailer to raise its profit forecasts for the fourth time this year.

The FTSE 100 company, which owns the UK rights to the US brands Gap and Victoria’s Secret as well as stakes in labels including Reiss and Joules, raised its expectations for full-year profits by £12m to £1.26bn.

It is the fourth time Next has raised profit forecasts this year, with the company having last ratcheted up its expectations in early August, as Europe faced a series of heatwaves.

Next, which has more than 500 stores across the UK, said in a stock market update on Thursday: “The first half was much better than we originally anticipated, both in the UK and overseas.

“It is important to acknowledge that part of this overperformance has been the result of two unusually warm summers in the UK. The rest of the overperformance is, we believe, largely the result of fulfilling the aims we outlined at the beginning of the year.”

That has included some cost-cutting efforts, particularly across Next’s warehouses.

Overall, total sales across the group were up 9% in the six months to July, helping push pre-tax profits for the half-year up by 11% to £566m.

Next said the performance over the past six months was “all the more unexpected given the strength of sales last year”. It made £1bn of annual profits for the first time last year.

However, the retailer cautioned on the impact of the rising cost of living and prospects for the jobs market.

“Our primary concerns are rising inflation, higher mortgage interest costs and a weak employment market. These worries will only be compounded if they are accompanied by tax increases,” it said, in an apparent reference to John Healey’s first budget on 28 October.

“It seems likely that it [the government] will have to increase taxes in order to fund its expenditure.”

While the group said it was deploying AI across the business, including its tech division, Next said it was ensuring fashion designs were still led by humans.

“In a world where AI is able to do more and more, our experience suggests that consumers prefer the authentic creativity of human beings,” it said. “That means we are putting more emphasis on designers using techniques that connect them directly to the artwork – painting, drawing, screen printing, etc. That is a big investment in time, and requires a higher level of creative talent than is needed to operate CAD [computer aided design] or prompt AI.”

Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “Next delivered its first-half results in style, with sales growth accelerating over the period and breezing past the fashion company’s original guidance. In the UK, hotter-than-expected weather and more effective marketing saw customers logging in to refresh their summer wardrobes online, helping offset a small decline in-store.”

Shares rose 2% in early trading on Thursday, making Next the top riser on the FTSE 100.