Next PLC lifts guidance after strong pre-Christmas trading but warns

Next PLC (LSE:NXT) upgraded its full-year profit guidance after a “robust” performance in the run up to Christmas Day and declared a special dividend but flagged economic uncertainties in 2022.

Full-price sales in the eight weeks to 25 December were up 20% on the same period two years earlier. This was £70mln ahead of the company’s previous guidance. The retailer gave a two year comparative as it was pre-pandemic.

The stronger than expected sales performance was driven by a revival in NEXT branded adult formal and occasion wear, the company said.

Guidance for profit before tax for the year to the end of this month was upped by £22mln to £822mln, which would represent a 9.8% improvement versus two years earlier.

The fashion retailer has given guidance for the next financial year, which is for a 7.0% year-on-year improvement in full-price sales. Profit before tax is expected to be 4.6% higher at £860mln.

The board said it intends to return to its pre-pandemic ordinary dividend cycle in the year ahead but in the meantime has declared a special dividend worth 160p per share to be paid at the end of this month. This follows the payment of a special dividend of 110p per share paid last September.

The FTSE 100 stalwart said it now expects to generate at least £345mln of free cash this fiscal year before shareholder distributions (the September dividend cost the company £140mln).

The run-up to Christmas was characterised by stock levels that were “materially lower than planned”, mainly because of better than expected full-price sales in the period, and some degradation in delivery service levels as a result of labour shortfalls in warehousing and distribution networks.

The company has revised its estimates for selling price inflation in the year ahead, mainly as a result of the unanticipated persistence of higher freight rates into the back end of the year ahead, along with some further increases in manufacturing costs. In addition to the increases in the cost of its goods, it is also experiencing increases in UK operating costs, mainly as a result of UK wage inflation.

“We anticipate that average wage inflation across the NEXT Group will be 5.4%, driven by the increase in the national living wage of 6.6% along with wage inflation in sectors where there are labour shortages, most notably in Warehousing and Technology,” the company said.