Next overdelivers, again

Management attributes the improved outlook to the fact that imported price inflation has not had as big an impact as feared. In March, Next – which, like many other retailers, buys its stock in dollars – forecast that the weaker pound meant it may have to raise its prices by 5 per cent. Now, year-on-year price increases are only expected to reach 4 per cent for its autumn/winter range, falling to 2 per cent in spring/summer 2018.

Chief executive Lord Wolfson explained that this was because clothing factories in countries such as China still had surplus manufacturing capacity which enabled the company to “negotiate out most of the currency devaluation” when buying its stock.

Still, higher prices do appear to have dissuaded consumers from shopping at Next in the reported period, sending total retail sales down 8 per cent to £993m. This, combined with the large fixed cost base, caused net operating margins to fall from 12 per cent to 9 per cent, meaning retail profits dropped by a third to £90m.

The story was better in the directory business where an 11 per cent rise in the number of cash customers (as opposed to those buying their wares on store credit) helped send directory sales up 6 per cent. Shareholders will be particularly pleased to see a 7 per cent rise in full-price sales, which helped send directory operating profits up 6 per cent to £217m.

Management continues to be characteristically wary about the all-important final quarter's trading. Analysts at UBS cite Black Friday promotions, new ranges and the weather as the main potential risks. Those risks did not stop the investment bank raising its full-year pre-tax profit forecasts by £10m to £725m, though. As a result, Next's EPS are now only due to fall to 405p in the year January 2018, from 434p in the prior year.