Next delivers profit boost, but cautions over ‘anaemic’ UK economic growth

Next has notched up a surge in half-year profits, but warned UK sales will be weighed on by “anaemic” economic growth and a faltering jobs market as the Government’s tax hike takes its toll.

The fashion and homewares group reported a 13.8% rise in underlying pre-tax profits to £515 million for the six months to the end of July as total full-price sales lifted 10.9%.

But it cautioned that UK sales growth will pull back sharply, to 1.9% in the final six months of its financial year, against growth of 7.6% in the first half.

Chief executive Lord Simon Wolfson said: “The medium to long-term outlook for the UK economy does not look favourable.

“To be clear, we do not believe the UK economy is approaching a cliff edge.

“At best we expect anaemic growth.”

It said the group’s UK performance was also boosted in the first six months by better than expected summer weather and disruption at rival Marks & Spencer after its online trading was hit by a major cyber attack.

With the absence of these in the coming months and combined with a weakening economy and dampened consumer spending, it expects sales growth to slow sharply.

The group said the Government’s move to increase National Insurance Contributions (NICs) and the minimum wage was leading to a steep drop in vacancies and making it harder for people to find work, especially young workers.

This will hit consumer spending power, it said.

However, it stuck to its recently upgraded full-year profit guidance for group sales to rise by 7.5% and profits to increase by 9.3% to £1.11 billion.

Shares in the firm fell 6% on market opening on Thursday.

The group expects sales in stores to fall by 0.6% over its second half even after adding new outlet space, with growth in its online business to more than halve to 3.6% from 9.2% in the first six months.

Next said that within its own business, job vacancies are down 35% – with steeper falls within stores – as it tackles soaring wage costs.

Applications have jumped 76%, with numbers per vacancy 2.7 times higher than two years ago.

Lord Wolfson said: “We first raised concerns about a potential weakening in UK employment in our report two years ago.

“Since then, vacancies have continued to fall, and PAYE payroll numbers are now moving backwards.

“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.”

The international business will help it weather the storm, with Next forecasting full-year overseas sales to soar by 23.8% and efforts to keep expanding this part of the business.