Next warns clothing prices likely to rise due to weaker pound
Next, the fashion and homewares retailer, has warned that its clothing prices are likely to rise after the pound dropped in the wake of the Brexit vote.
The warning came as the retailer reported that its total full price sales edged up 0.3% in its second quarter. Full price sales in stores fell by 3.3% although Next directory sales increased by 5.7%.
Although Next went into its end-of-season sale with significantly more stock than last year, it said the sale had gone well with clearance rates slightly ahead of expectations. This meant that total sales for the first half of the year, including markdowns, grew by 1.8%.
The retailer said it would be unwise to draw any firm conclusions on the effect the Brexit vote on consumer demand. In the medium term, however, it warned that the devaluation of the pound is likely to affect the cost price of its goods. It added: “Although it is very early in the buying cycle, we currently estimate that cost prices in 2017/18 will rise by less than 5% on like-for-like products.”
Next said trading remains extremely volatile and on a week-by-week basis is highly dependent on the weather and it expects the consumer environment to remain tough for the rest of the year.
It explained: “Quarter three will be particularly challenging as it was our best quarter last year (up +6%), so we are budgeting for full price sales growth in the third quarter to be worse than in the second quarter.
“The fourth quarter presents much softer comparable numbers when the problems of an exceptionally warm 2015 winter were compounded by stock availability problems in Directory last year. So there is potentially some upside in the last quarter, particularly if we have a colder winter.”
Next has now narrowed its forecast for full-price sales for the full to be in the range of 2.5% lower to 2.5% higher. Profits for the year are forecast at between £775 million and £845 million.
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