Next’s gloomy 2017 forecast drags down fashion retail shares

Next’s share price has slumped after the clothing retailer cut its 2016 profit forecast and warned of a tough year ahead as rising inflation begins to affect consumers’ ability to spend on clothes.

The company, which is run by Lord Wolfson, a prominent Vote Leave campaigner, said it expected a cyclical slowdown in consumer spending on clothing and footwear, which began in November 2015, to continue into 2017.

Next also forecast that sales might be further depressed this year by a squeeze on spending as inflation eroded real earnings growth. It also warned that the devaluation of the pound following the Brexit vote would push up the price of clothing staples it sells all year round, such as T-shirts, by up to 5%, depressing sales revenue by about 0.5%

The retailer was the biggest faller in early trading on the FTSE 100, with shares down by more than 10%.

Next’s gloomy forecast for 2017 dragged down other fashion retailers, with Marks & Spencer and Debenhams falling about 5% and Primark’s owner, Associated British Foods, more than 3%. Shares in Burberry, Ted Baker and Tesco were also down in early trading.

Sales dipped by 0.4% in the fourth quarter to 24 December. Next had expected sales to grow from the previous year as the final three months of 2015 were poor. Sales were down 3.5% in the third quarter, which prompted it to lower its annual sales forecast in November.

Sales in the end-of-season sale since Boxing Day plunged 7%, which cost the company £3m.

As a result, Next expects to make a pre-tax profit of £792m for the year to January 2017, at the bottom end of its previous forecast of £785m to £825m. The new forecast is 2% lower than the midpoint of that range, £805m.

The author: Michel DEURINCK

Michel Deurinck, born in Brussels in 1950, started his career in the Belgian civil service, dedicating over 30 years to public service. Upon retirement, he pursued his passion for journalism. Transitioning into this new field, he quickly gained recognition for his insightful reporting on politics and culture. Deurinck's balanced and thoughtful approach to journalism has made him a respected figure in Belgian media.

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