Next has delivered a strong profit surge but warned of deepening economic challenges ahead. The fashion and homewares retailer reported a 13.8% rise in underlying pre-tax profits to £515 million for the six months ending in July, with total full-price sales climbing 10.9%.
However, the company expects UK sales growth to slow dramatically in the coming months. Growth is forecast to drop to just 1.9% in the final six months of its financial year, down sharply from the 7.6% achieved in the first half.
Chief executive Lord Simon Wolfson painted a bleak picture of Britain's economic outlook. "The medium to long-term outlook for the UK economy does not look favourable," he said. "To be clear, we do not believe the UK economy is approaching a cliff edge. At best we expect anaemic growth."
Temporary boost factors fade
Next acknowledged that several one-off factors had artificially boosted its first-half performance. Better than expected summer weather drove sales higher, while disruption at rival Marks & Spencer following a major cyber attack on its online platform also benefited Next.
With these temporary advantages set to disappear, the retailer expects a sharp deceleration across its business. The group forecasts store sales to fall by 0.6% over its second half even after adding new outlet space, while growth in its online business will more than halve to 3.6% from 9.2% in the first six months.
Employment squeeze intensifies
The retailer highlighted serious concerns about the jobs market following recent government policy changes. Next said increases to National Insurance Contributions and the minimum wage were causing a steep drop in job vacancies, making it particularly difficult for young workers to find employment.
Within Next's own business, job vacancies have plummeted by 35% as the company tackles soaring wage costs. Applications have jumped 76%, with numbers per vacancy now 2.7 times higher than two years ago.
Lord Wolfson said the employment crisis had been building for some time. "We first raised concerns about a potential weakening in UK employment in our report two years ago," he said. "Since then, vacancies have continued to fall, and PAYE payroll numbers are now moving backwards."
Triple pressure on jobs market
The chief executive identified multiple factors squeezing employment opportunities. "The problem appears to be that employment, particularly at the entry level, faces the triple pressure of rising costs, increasing regulation and displacement through mechanisation and artificial intelligence," he said.
This employment squeeze will directly impact consumer spending power, the company warned. The combination of fewer job opportunities and reduced disposable income threatens to further dampen retail demand across the sector.
International growth provides buffer
Despite the domestic challenges, Next maintained its recently upgraded full-year profit guidance. The company still expects group sales to rise by 7.5% and profits to increase by 9.3% to £1.11 billion for the full financial year.
The international business will help weather the domestic storm, with Next forecasting full-year overseas sales to soar by 23.8%. The company continues efforts to expand this part of the business as a buffer against UK economic weakness.
Shares in the firm fell 6% on market opening on Thursday following the mixed results and cautious outlook.
Sources used: "PA Media" Note: This article has been edited with the help of Artificial Intelligence.
