Next raises profit guidance after hot summer boosts clothing sales

Next has raised hopes that UK shoppers are still willing to spend despite pressures on household budgets, after the hot summer boosted its clothing sales.

The retailer has upgraded its profit guidance for the third time this year, saying it benefited from sunny weather and the release of some “pent-up demand” in the Middle East and northern Europe in the 13 weeks ended on 1 August.

Next, which owns the UK rights to the US brands Gap and Victoria’s Secret as well as stakes in a plethora of labels including Reiss and Joules, said its full-price sales rose by 9% in the second quarter compared with the same period last year, more than double its initial estimate of a 4% rise.

Growth was led by Next’s suite of alternative brands and strong online sales with trading in stores down, as customers shunned the high streets during the sweltering summer.

The FTSE 100 company, which has more than 500 stores across the country, has a long history of pushing expectations higher and then beating them.

This pattern has helped push its share price up by more than 20% in the past year alone.

The retailer, which is led by the chief executive, Simon Wolfson, now expects to end the year with a pre-tax profit of £1.2bn, about £25m higher than previously expected and a potential 7.3% rise against last year.

Its shares jumped by almost 7% to a fresh record high on Wednesday morning, making it the best performer across the FTSE 100 share index.

Garry White, the chief investment commentator at the wealth manager Raymond James, said Next’s update showed it could “outperform despite a challenging backdrop for consumer spending”.

He added: “If there is one lesson investors have learned from Next over the years, it is that management has a habit of under-promising and over-delivering, making guidance upgrades feel less like surprises and more a feature of the investment case.”

It comes as other retailers report that they are grappling with a difficult trading environment, with many warning of inflation and falling consumer confidence as a result of the Iran war.

While the amount of clothing, footwear and accessories sold by British retailers was up by about 2% in June, according to analysis by the retail experts at Jefferies of market data from Worldpanel by Numerator, the total value of sales was down year on year because of discounting and a shift to cheaper products.

There were also clear winners and losers in the lacklustre market, with Next and Marks & Spencer on the rise, while H&M and Zara sales were down.

Some analysts expected Next’s strong performance during the hot weather to be repeated by other retailers. However, Louise Déglise-Favre, an apparel analyst at the market analysis firm GlobalData, said: “Next is selling itself short by attributing its strong [summer] performance to the exceptional weather in the UK and pent-up international demand, when its consistent outperformance of the apparel market shows that it continues to deliver with product offering, convenience and pricing strategy.”

Last month the boss of John Lewis told employees that its profits were being squeezed by “really tough” trading conditions, according to the Financial Times.

Jason Tarry, the chair of the John Lewis Partnership, said in an interview with the company’s internal magazine, seen by the FT, that the department store chain was dealing with an environment where it “will trade into lower sales and higher costs”.

He added: “We have to adjust for an immediate future that we weren’t expecting even six months ago, let alone a couple of years ago.

“It is difficult when things are tough from a sales perspective, but we’re holding our nerve around our focus on margin improvement and firm stock control, rather than just trying to chase top-line sales.”