High street chain Next has said it expects to raise its prices more slowly over the year ahead as it revealed better-than-expected annual profits.
The retail giant reported a 5.7% rise in pre-tax profits to £870.4 million for the year to January, which was higher than the £860 million it had previously pencilled in.
Next said full-price sales rose 6.9% year on year.
The group, which has been increasing 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% this spring/summer, easing back to 3% in the autumn/winter.
It had previously expected to ramp up its prices by 8% for spring/summer and 6% for autumn/winter, but said it is seeing supply chain woes 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 predicted a drop in profits to £795 million due to soaring wage and utility bills, with sales expected to be 1.5% lower.
It said sales in the first eight weeks of the new financial year were down 2% and forecast a drop overall in the first half of 3% 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%.
Group finance director Amanda James told the PA news agency that price inflation is settling down.
“I don’t want to say we’re completely out of the woods but, at the moment, it looks far more stable,” she said.
“It feels like we’re experiencing what the wider economy is feeling as well.”
But shares in the group fell 7% in early trading on Wednesday on its forecasts for a more difficult year ahead.
It is predicting sales to fall by 4% in the second quarter, as the cost-of-living crisis weighs on consumer confidence and as it comes up against tough comparisons.
Ms James told PA: “Consumers have got cost pressures. We do think it will be tougher in the second quarter.
“Last year there was a bit of a surge in events, weddings and the Queen’s Jubilee.
“There was all sorts of things as we all came out of the pandemic and there was also really warm weather.”
On the outlook, she added: “I think it’s going to be a challenging year. That’s reflected in our profit forecasts.”
But she said the forthcoming rise in the national minimum wage and wider pay rises in the economy should help boost Britons’ spending power.
However, higher wages are also adding to pressures for companies, with Next’s staff salary bill increasing by £67 million in 2023-24. Power costs also jumped by £25 million, though this was slightly lower than the £28 million extra it had previously feared.
The figures come after Next confirmed on Tuesday that it is buying fashion and homeware brand Cath Kidston out of administration for £8.5 million to add to its fast-growing retail stable, having already snapped up the likes of Joules, Made.com and JoJo Maman Bebe.
Ms James said the group is open to further similar deals.