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UK retail outlet Next has posted another rise in sales ahead of expectations over the Christmas period, but warned that a price increase is on the cards for 2025 as it looks to overcome raised costs following last year’s Budget.
The company also noted it expects its own growth to slow this year and cautioned the same will be true countrywide as shops and organisations lift prices, causing a slowdown in consumer spending.
Next said: “We believe that UK growth is likely to slow, as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy.”
The company expect a rise of around £67m this year on its wage bill as a result of increases to the minimum wage and National Insurance contributions, or £73m for a full year impact. To offset that, a 1 per cent increase in prices of its products will recoup around £13m, with a further £23m saving to be made through “improved working practices and other operational efficiencies in our warehouses, distribution networks and stores”.
While all retailers will be hit by similar bills in 2025, Next’s reaction and ongoing resilience are a marker of how businesses should be operating, said investment platform AJ Bell’s Russ Mould. “These figures are a further reminder, as if one were needed, that retailers can thrive, regardless of what the weather does, if they sell the right product at the right price point in the right format for the target customer base,” he said.
“Doing this correctly will improve stock turn and sell-through, reduce the need to discount and in turn help profit margins and cash flow. Next seems to have the knack of getting this right.”
Shares in Next plc were up by almost four per cent across the day by noon, with the wider FTSE 100 index down around 0.24 per cent.
The group has added to a growing list of firms alerting over price rises to combat cost increases, while the British Chambers of Commerce said earlier this week that more than half of companies are planning to lift prices over the next three months due to cost pressures.
Next’s warning came as the firm reported a better-than-expected 5.7 per cent rise in underlying full-price sales for its fourth quarter so far, and upped its full-year pre-tax profit outlook once again, pencilling in a 10 per cent jump to £1.01bn. This compares with previous guidance for a 9.5 per cent rise to £1.005bn.
But over the new financial year to January 2026, it expects sales growth to slow to 3.5 per cent and for group profits to increase by a more muted 3.6 per cent to £1.05bn.
“The year ahead is forecast to be more challenging, but Next still expects to grow sales and profit. It is a classic example of a strong business getting stronger,” commented Charlie Huggins from Wealth Club, an organisation offering high-net-worth investment services.
“[The] year 2025 is likely to be a bloodbath for the UK retail sector. The Autumn Budget means retailers will face a significant increase in employee costs and many will not be able to offset this. Next stands apart for its ability to do so, with its high margins, strong overseas growth and efficiency initiatives all helping it to preserve profitability.
“Next has also warned it will need to put up prices in the year ahead. Many other retailers are likely to follow suit. This is likely to add to inflationary pressures and could encourage consumers to tighten their belts in 2025.
“Overall, the UK retail sector sits between a rock and a hard place. Costs are going up, margins are likely to come down and consumers face an inflationary squeeze. Next though is well placed to weather the storm. If any retailer can thrive in this environment, it’s probably them.”
Additional reporting by PA
