Next raises profit forecast after Christmas sales surge; JD Sports issues profit warning

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Introduction: Next raises profit forecast after Christmas sales surge; JD Sports issues profit warning

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The UK clothing chain Next has raised its profit forecast for the fifth time in seven months, as it reported better-than-expected sales for the Christmas period, while JD Sports Fashion blamed warm weather for a worse-than-expected performance and warned on profits.

The fashion and homewares retailer said sales rose 5.7% year-on-year in the nine weeks to 30 December, better than its previous estimate of 2% growth. In the last two weeks before Christmas, sales jumped by 10%.

It upgraded its profit before tax estimate by £20m to £095m, up 4% from last year. Of that, £17m came from the sales beat so far and £3m from an upgraded sales forecast for January.

Richard Lim, the chief executive of the consultancy Retail Economics, said:

These figures are astonishingly strong and they will set them apart from the competition. There’s a gap emerging between those retailers who have invested heavily in their digital proposition over the last decade with those who have not and Next is leading the pack.

Next went into the end of season sale with 12% less stock than last year. The retailer said:

On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties.

Next pointed to wages rising in line with, in not more than, inflation, but said it does not intend to raise its selling prices in the year ahead.

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Risks include a weakening employment market, as vacancy rates in the UK have already fallen over the last six months, and if this continues, is likely to result in increased unemployment. Fixed-rate mortgage deals will continue to expire forcing homeowners to refinance at much higher rates than they have been used to in recent years.

Next also mentioned that difficulties with access to the Suez Canal (caused by Houthi attacks in the Red Sea), if they continue, are likely to cause some delays to stock deliveries in the early part of the year.

The largest cost increase will be wage inflation, estimated to be around £60m, due to inflation and the rise in the national living wage.

The sports retailer JD Sports didn’t fare as well. It blamed milder weather and a glut of promotions in the sports market. Like-for-like sales rose 1.8% in the 22 weeks to 30 December, behind its expectations, while total revenue growth was 6%.

It lowered its estimate for profit before tax and adjusted items to between £915m and £935m, 10% below its previous guidance of £1.04bn.

Its new chief executive Régis Schultz said:

We have made good progress against our five-year strategic plan, delivering global organic revenue growth of 6% in the period, against very tough comparisons with last year, and opening over 200 new JD stores in the year. Our key markets have seen increased promotional activity during the peak trading season, driven by a more cautious consumer, but we continue to grow market share.

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