Next’s chief executive has called for more clarity on the amount of corporate tax that businesses will pay in the UK in the coming years as the retail chain warned on profits.
Lord Simon Wolfson, the Conservative peer and longest-serving FTSE 100 chief executive, said: “While we can justify where we are and that we need to pay for the pandemic, where we are going forward comparative to other countries . . . I’m not sure this level is the right level, and the government hasn’t told us what the long-term aspirations are.”
The UK government is raising the tax rate in April from 19 to 25 per cent for companies with annual profits of more than £250,000. Wolfson did not say what he thinks the rate should be.
His remarks came after Next warned of a “difficult year” ahead as it budgets for a drop in earnings this year despite record annual profits in 2022.
The group, which has 466 stores in the UK, said it expected full-price sales to be down 1.5 per cent this year and profit before tax to fall 7.6 per cent to £795mn, slightly below the current consensus of £805mn.
Wolfson said: “The year ahead looks like it will be challenging: the combination of inflation in our cost base and top line sales, which are likely to edge backwards, is uncomfortable.”
The shares fell almost 8 per cent to 6,202p in early trading in London but pared back losses to trade at about 5 per cent lower despite the group posting a better than expected rise in annual profits in 2022.
Pre-tax profit was £870mn in the year to January, up 5.7 per cent year on year and £10mn higher than previous guidance of £860mn. Full-price sales rose 6.9 per cent year on year as shoppers flocked to stores after Covid-19 restrictions eased and were up 20.5 per cent against pre-pandemic levels.
However, the group warned that inflation would continue to drive up costs until the second half of this year when it should start to ease.
Prices in its spring/summer ranges are forecast to rise 7 per cent and in autumn/winter 3 per cent, although the increase was “more benign than previously thought” as freight costs and energy bills come down.
Over the past three years, underlying group operating margins have fallen from 18.16 per cent to 16.53 per cent in 2022. It said it expected underlying net profit margins of about 15 per cent this year.
Josh Warner, an analyst at City Index, said the outlook “suggests that both growth and profits have peaked”. “Next is known for underpromising and over-delivering but has warned shareholders it is not being overly cautious,” he added.
The group said it still had “far more ideas and opportunities for long-term growth than it has had for some time”. It added: “And while the year ahead looks very challenging, we are not facing the kind of long-term structural obstacles that we have overcome in the past eight years.”
The traditional retail sector has been shaken by a rapid shift to online shopping and increasing competition from ecommerce rivals over the past decade.
Analysts at Peel Hunt said: “Next remains one of the UK’s leading fashion platforms, but is still only serving c.25 per cent of households.”
