“Our view is that, in a hard trading environment, taking new space is one of the few ways to mitigate losses from negative like-for-like sales”, NEXT said.
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Wolfson said the pound’s fall could increase the cost of buying garments by 5% at the most for Next.
However, Next said because of planning ahead the fall in sterling would not affect it until spring 2017.
NEXT shares fell 2.7% to 5,070 pence after the company announced its half-year results. Peer Marks & Spencer’s (MKS.LN) shares were also down 2.2% at 314.8 pence.
The group nudged up full-year profit expectations from £800m to £810m. Next Retail sales rose 0.1 per cent during this period, while Next Brand swelled three per cent and Next Direction jumped seven per cent. UBS analyst Andrew Hughes said this is a wider band than usual.
The group is bracing itself for a hard quarter to the end of October, saying it is set to be the “toughest” of the year as it comes up against tough comparatives.
“There has been some talk of a general retail bounce in July and while Next did enjoy very strong sales in July, this was driven by a much larger end-of-season sale”, Chief Executive Officer Simon Wolfson said in the statement. But full-price sales in July remained subdued, prompting it to caution that it did not believe July trading represented any change in underlying consumer spending patterns.
Almost two-thirds of Next’s costs are in dollars, but the majority of its sales income is in sterling, and the retailer said that the pound’s recent devaluation would begin to feed through to higher prices next spring. The company reiterated that its third quarter is likely to be its toughest.
The group, which also owns Waitrose, said its commitment to competitive pricing, increasing pay and investment held back profits in the six months to July 30. Compared with the same month a year ago, sales in August were 6.2% higher.
Next attributed the strong performance in Directory to improved stock availability, enhanced website functionality and continued growth in its fashion website Label.
“With its stores reporting falling sales, NEXT is dependent on the online directory business for growth”, said Hargreaves Lansdown’s analyst George Salmon.
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Pretax profit fell 1.5 percent to 342 million pounds ($453 million) in the six months through July, the company said in a statement Thursday.
