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NEXT has warned against further tax increases in next month’s Budget, as higher living and mortgage costs put pressure on UK consumers.
The retailer delivered better-than-expected first-half trading, led by online and international sales, but lowered its UK growth forecast for the second half amid a cooling labour market and inflation linked to the Iran war.
Chief Executive Lord Simon Wolfson said: “These worries will only be compounded if they are accompanied by tax increases.”
Online growth offsets weaker store sales
NEXT reported a 10.5% increase in underlying pre-tax profit to £569 million for the six months to July. Statutory pre-tax profit rose 11.2% to £566 million.
UK full-price sales increased 3.6%, with online sales growth of 7.4% offsetting a 1.7% decline across stores. International online sales advanced 23.9%, despite price increases in some markets as the conflict in the Middle East raised operating costs.
The retailer described first-half trading in the UK and overseas as “much better” than expected. It now forecasts full-year profit of £1.23 billion, representing 8% growth, while sales are expected to increase by 6.7%.
Julie Palmer, Managing Partner at financial and real estate advisory group BTG, said: “NEXT’s vast footprint across shopping centres, high streets, retail parks and online internationally means it is able to suit the changing needs and behaviour of customers wherever they shop, providing the value that they will be looking for with gifting and clothing this Golden quarter.
“From the unrelenting growth we have seen from the fashion giant over the years and its once again raised profit guidance, NEXT has its eyes on the prize and will no doubt be one of the winners who sweep up this festive season.”
However, NEXT reduced its forecast for UK sales growth during the final six months of the year from 2.8% to 2%. It cited higher living and mortgage costs, alongside a weaker jobs market, as risks to consumer spending.
The caution follows NEXT’s previous estimate that the Iran war could cost the business £47 million, prompting price increases of up to 8% in some international markets.
Wolfson added that household pressures would be compounded by tax increases in next month’s Budget.
“The tax burden is at its highest level for over 60 years and seems to us to be at the point where further increases only risk stifling growth, and lower growth is likely to only worsen Government finances, a vicious circle,” he said.
Wolfson called for a credible plan to control government spending and for supply-side measures intended to support economic growth.
His intervention follows earlier warnings about youth unemployment, when he attributed declining entry-level retail vacancies to increased labour costs and sluggish economic growth. It also comes amid opposition from the retail sector to higher business rates for larger stores.