Diversity & equality in business
This article is more than 11 years old
Next sees boost from April sun and royal wedding
Company warns of 8% rise in prices
Fears remain over consumer spending
Next expects pre-tax profit of £535m-£585m
Next has hiked its profit forecast. Photograph: Alamy
Graeme Wearden
Wed 4 May 2011 08.50 EDT
Next has raised its profit forecasts after enjoying a boost in sales from the recent warm weather and the royal wedding.
The high street and catalogue retailer reported stronger than expected trading for the last thirteen weeks, particularly in womenswear as shoppers bought new outfits for the summer. Next shares had jumped more than 5% by early afternoon to £23.38.
However the company remained downbeat about the outlook for the rest of 2011, warning that consumers were still reluctant to spend.
"Despite the strength in recent sales, we remain cautious for the full year given that there has not been a significant change in the underlying economic environment," said Next. "The combined effects of the public sector deficit cuts and continued inflation in essential commodities are likely to restrain growth in consumer spending generally."
The company also warned that it will increase prices by around 8% during the second half of this year, in response to higher costs of raw materials such as cotton. This is on top of average price rises of 6% implemented earlier this year.
Stripping out the impact of the VAT rise, sales across Next's retail outlets and its Directory catalogue rose by 5.2% between the start of February and the end of April, a much stronger performance than the company itself predicted in March. It believes that around 2.5% of this growth came from spending around last Friday's royal nuptials, and from the unusually sunny weather in April.
"We believe these factors have encouraged consumers to bring forward summer purchases and we do not expect the current levels of growth to continue into the second quarter," the company said.
Next now expects to post a pre-tax profit of between £535m and £585m, £15m more than it predicted in March.
Next's strong performance contrasts with that of chocolate-maker Thorntons, which blamed the "unprecedented" Easter sunshine for its second profit warning of 2011.
Shares in Marks & Spencer also rallied, up 3.4% to 397p, as traders predicted that it had also profited from the warm weather. Nick Bubb, retail analyst at Arden Partners, said that other retailers probably fared less well.
"We all know that food retailers have had a great time … but the evidence is mounting that household goods retailers have not enjoyed the hot weather, given the vibes that John Lewis struggled last week and the news that poor old Comet have parted company with their managing director," Bubb said.
Sam Hart, analyst at Charles Stanley, predicted that the UK retail environment would be tough for the next 18 months as consumers "absorb the full impact of government austerity measures and inflationary pressures".
"We do not, however, anticipate a 'meltdown' in consumer expenditure, given our belief that unemployment is somewhere close to the peak and expectation that interest rate increases will be relatively modest," Hart said.
All Saints saved by Lion Capital
Morrisons' quarterly sales jump 2.5% thanks to royal wedding promotions
Thorntons blames sunny Easter for profits warning
Four thousand jobs threatened at Focus DIY