Next warns of second cost-of-living crisis in Britain
Retail stocks tumbled on the back of Thursday's results, with Next sliding as much as 10%.
The plunge in the value of the pound looks set to create a second cost-of-living crisis for people in Britain, clothing retailer Next has warned as it cut its sales and profit forecasts.
Shares in the company tumbled more than 7% after it said August trading had been below expectations and pressure on household budgets was set to intensify in the coming months.
"It looks like we may be set to have two cost of living crises: this year, a supply side-led squeeze, next year a currency led price hike as devaluation takes effect," said CEO Simon Wolfson.
Next, which trades online and from about 500 stores, including a significant number across Ireland, is often considered a gauge of how British consumers are faring, said it now expected full-price sales in the second half of its financial year to fall 1.5%, and a full year pretax profit of £840m (€946m), up 2.1% versus 2021-22.
It previously forecast second-half full-price sales growth of 1% and a full-year pretax profit of £860m (€969m). The group reported a pretax profit of £401m (€452m) for the six months to July, up 16%, with full-price sales up 12.4%.
Confidence levels among Britain's consumers sank to a record low this month as they struggle with the accelerating cost of living, even before the British government's mini-budget on Friday sowed turmoil in the mortgage market, leading to warnings of a sharp drop in house prices.
Wages are failing to keep pace with inflation which was 9.9% in August and Next's rivals Primark, ASOS, and Boohoo have all warned on profit this month.
H&M, the world's second-largest fashion retailer, launched a 2bn Swedish crown (€183m) cost savings drive on Thursday after reporting weaker-than-expected profits.
In Europe, where H&M does the bulk of its business, the Ukraine conflict, record energy prices and high inflation are weighing on consumer confidence, and households are cutting back on spending.
CEO Helena Helmersson told Reuters a big part of the savings programme would come from simplifying organisational structures and buying fewer tech services. Less business travel and lower office rents were other aims of the programme, she said.
H&M said it is also considering charging for online returns amid a series of efficiency measures to reduce surging costs. The company is trying out the fees in Norway and Britain in the coming days.
Separately, Deutsche Bank has said British retailers are facing a “mortgage time bomb,” with rising interest rates set to have twice the impact on consumer finances as the recent surge in utility bills.
A “significant” increase in the cost of servicing home loans will reduce disposable incomes by about 5% in 2023, Matt Garland wrote in a note yesterday, adding to pressure on consumers already struggling to contend with soaring inflation.
Retail stocks tumbled yesterday on the back of the results, with Next sliding as much as 10% and H&M down 7.2%, dragging the Stoxx 600 Retail Index to its lowest level in more than 10 years.
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