Next boss warns of two cost of living crises after slashing forecasts
Next has slashed its sales and profit forecasts for the second half of the year as a cocktail of cost of living pressures squeezes consumer spending power.
The high street stalwart’s share price was down almost 10 per cent on Thursday afternoon, as leadership warned of a second cost of living crisis next year following the devaluation of the pound.
Next’s chief executive, Lord Simon Wolfson, warned the country would have to endure a cost of living crisis twice, with a supply side led crunch this year followed by a currency led squeeze elevating prices in 2023.
“Going forward, the devaluation of the pound looks set to prolong inflation, even once factory gate prices ease,” the firm said.
Next said sales were now expected to contract 1.5 per cent compared to last year, while profits would come in at around £840m, down from an initial forecast of £860m.
It came despite a strong first six months of the year for Next in which profits jumped 16 per cent to £401m on the same period last year as sales rose 12.4 per cent.
But the retail group said that economic pressures have already began to drag on sales in August.
“August trade was below our expectations and cost of living pressures are set to rise in the coming months. Sales in September have improved, and we may see benefits from recent government measures,” Next said in its half year report.
“It is a very difficult call but, on balance, we have decided to reduce our forecast for full price sales in the second half from +1 per cent to -1.5 per cent versus last year.”
Earnings per share at the firm – assuming the recently announced change in UK corporation tax rate is enacted before the year end – are forecast to be 545.1p, up 2.7 per cent on 2021.
“Borrowing and spending measures on their own won’t solve the cost of living crisis,” Lord Wolfson told reporters on Thursday.
In its economic commentary, Next said only measures which boost the supply of goods, energy, services and skills would “cure the underlying malaise,” calling on ministers to address supply side problems.
Ministers should consider scrapping “capital projects that deliver little value,” Next said, citing the HS2 rail development in Northern England as “top of our list for review.”
Such cuts would “reduce borrowing and release desperately needed goods and services back into the economy,” Next stated.
The government must be ‘quick and brave’ in supply side reforms, Lord Wolfson explained, citing policies such as tariffs and tweaks to immigration policy.