Next sees price hikes easing over the year ahead

The group, which has been hiking prices to offset surging cost pressures, said price inflation is set to be “more benign” than previously thought, forecasting increases across its ranges of 7 per cent this spring and summer, easing back to 3 per cent in the autumn and winter.

It had previously expected to ramp up its prices by 8 per cent for spring and summer and 6 per cent for autumn and winter, but said it was seeing supply chain troubles ease off, with sharply lower shipping costs, and as it costs less to buy stock from overseas.

The outlook for prices gives further hope to cash-strapped households that sky high inflation will start to ease back during 2023.

But Next remains more cautious in its outlook over the year ahead, sticking by guidance in January that predicts a drop in profits to £795m due to soaring wage and utility bills, with sales expected to be 1.5 per cent lower.

It said sales in the first eight weeks of the new financial year are 2 per cent down and forecasts a drop overall in the first half of 3 per cent as it compares with a boom in trading a year ago, when there was a release of pent-up demand for summer events after Covid restrictions were lifted.

Next believes sales declines in the second half will pare back to around 0.2 per cent.

Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, commented: "This is another solid performance from the bellwether of the UK High Street, reinforcing Next's reputation as one of the best run UK retailers.

"Many other retailers have struggled in the current environment, but Next's proposition is clearly resonating with the UK consumer. The removal of pandemic restrictions has certainly helped, leading to a strong recovery in store sales. But this shouldn't take away from Next's excellent operational execution.

“Looking to the year ahead, the environment is set to get tougher. Next's sales are expected to fall modestly, with profits down close to 10 per cent, as cost pressures take their toll.

“Next expects cost inflation to peak at around 7 per cent in the spring summer season before falling to 3 per cent in the second half.

"This is materially lower than previously feared, due in part to falling freight costs. It means Next doesn't have to push through such big price increases, which in turn should support demand for its wares.

“Overall, Next, and the rest of UK retail, are still facing a very difficult economy in 2023. But with inflation starting to moderate, things are not looking as bad as they were a few months ago."

Inflation has affected the performance of businesses across a wide range of sectors. Earlier this week, analysts at Kantar said supermarket inflation hit 17.5 per cent in the month to March 19, up from 17.1 per cent in February.