Next says warm September more harmful than Brexit heat

19 September 2019, 06:56 | Updated: 19 September 2019, 08:58

The Brexit-supporting boss of Next says a warm start to September has done more to hinder sales than political uncertainty.

Lord Wolfson made his remarks as the retailer reported a 3.7% rise in sales in the first half of its financial year, running to the end of July, resulting in a 4% rise in statutory pre-tax profits to £327.4m.

While store sales continued to stutter, falling by more than 5% amid the continuing crisis for the wider high street, online business was up by almost 13% with over £1bn in revenue.

The company maintained its outlook for a slight rise in annual profits to £725m despite a "disappointing" start to autumn trading.

Shares were 5% lower when the market opened.

As the clock ticks down to the Brexit deadline of 31 October, Lord Wolfson said recent trading had proved tough despite strong fundamentals for the economy as household spending power surges at a time of record employment.

He wrote: "It is very hard to determine whether the uncertainty over Brexit is having any effect on consumer spending and we can find no evidence that it is affecting spending on small ticket price items.

"Some suggest that the fact of Brexit, of itself, might undermine consumer confidence.

"Certainly, the first few weeks of the autumn season have been disappointing. However, we believe that the warm start to September has done much more to hinder sales than the political temperature.

"Our experience is that political storms, of themselves, rarely affect sales and consumers only change their behaviour when those events directly impair their income or increase their non-discretionary expenditure."

He added: "Our view is that Brexit will only materially affect consumer spending in the event that it triggers inflationary pressure on prices or logistical problems at our ports."

Next said that it did not expect any no-deal Brexit to cause it to raise its prices - pointing to work on currency hedging, falling commodity costs and "continued development of our sourcing base".

It continued to forecast that a 2% decline in the cost of its goods, in that scenario, would be passed on to shoppers because of an expected fall import duty costs.

Lord Wolfson concluded: "A no-deal Brexit is not our preferred outcome.

"That said, as long as our ports continue to operate effectively, we do not believe that the risks of a no-deal Brexit pose a material threat to the ongoing operations and profitability of Next's business, here in the UK or to our £233m turnover business into the EU."

There was, however, a nod to the crisis facing the high street which has forced many competitors, including Sir Philip Green's Topshop empire, to seek rescue deals as costs surge and store visits decline.

Lord Wolfson said: "The weight of rent, rates and service charge costs remain stubbornly fixed in the stores where the leases have yet to be re-negotiated.

"As a result, we continued to see significant margin erosion as retail sales fall."

Analysts at Shore Capital wrote in a note to clients: "Next remains a well-managed company with tight cost and stock control, a clear well-executed strategy and an experienced management team.

"Given that the Q2 (second quarter) trading statement at the end of July resulted in a small upgrade to FY (full year) profit guidance, we did not expect further upgrades ahead of the peak trading season."