UK clothing retailer Next Plc lifted full-year guidance after better-than-expected December sales but warned it would have to lift prices to offset weaker UK growth as employer tax increases, and their impact on prices and employment, begin to filter through.
The company on Tuesday said like-for-like prices would rise by 1% in response to the £73m in extra wage and national insurance measures introduced in the last UK Budget.
It said around £13m of the £67m in extra wage costs could be offset through raising prices.
"Fortunately, we are seeing 0% inflation in factory gate prices. So although we are increasing our bought-in gross margins, we still expect our prices to rise by less than the Bank of England's target for inflation of 2%," Next added.
"Consumers have continued to slightly shift their purchasing preferences, buying fewer entry-level products and more items at the middle and top end of our price architecture. To be clear, consumers are not necessarily spending more overall, but buying fewer, marginally more expensive items."
Full-year guidance for the 12 months to January was lifted by £5m to £1.01bn after underlying full-price sales rose by 5.7% against expectations of a 3.5% increase. For 2026, Next anticipates full-price sales growth of 3.5% and profit before tax of £1.046bn, up 3.6%.
"Growth in the UK was in line with the performance for the rest of the year, but online sales growth increased at the expense of growth in our retail stores. Secondly, and unexpectedly, our sales growth overseas accelerated in the run up to the holiday period," Next said.
"We anticipate that growth overseas will moderate from the 24% we have achieved this year to 14% in the year ahead. In the current year, overseas sales benefited from an +85% step change in marketing expenditure, funded by some price increases."
Reporting by Frank Prenesti for Sharecast.com