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Investing.com — Next (LON:NXT) earned more than it expected last year after a surprisingly strong end to the year, but said it remained “cautious” about the next 12 months, given the ongoing recession in the U.K.
The U.K. fashion retailer said on Thursday that it now expects profit before tax to be £860 million (£1 = $1.2027) in the year ending January 31st, some £20M higher than its previous guidance, after a holiday season in which sales were up 4.8% from a year earlier. It now expects earnings per share of 567 pence, a gain of 6.9%.
Even so, Next said it expects profit to fall over 7% to £795M in the following 12 months, due to a 1.5% drop in full-price sales and a significant rise in wage and energy costs. It warned that inflation and higher housing costs are likely to eat into customers’ disposable income, while it will also face continued pressure on margins from higher input costs itself.
Next said that much of the cost inflation it will suffer next year is due to the depreciation of sterling this year, given that most of its contracts with suppliers are priced in dollars.
Much of the increase in next year’s prices are the result of the devaluation of the pound against the dollar. Eighty percent of our contracts are negotiated in dollars so the devaluation of the pound has had a significant impact on our prices. The table below sets out the dollar rates we achieved this year and those we have locked in for the year ahead, along with the increase in the cost of dollars.
Its assumptions are based on an average sterling rate of $1.27 for its spring and summer collections and $1.14 for its autumn and winter collections, down by as much as 17% from last year’s contract rates. It expects to raise its selling prices by around 8% for spring and summer and around 6% for autumn and winter.
