Rising Boss Issues Alert on Sluggish Growth and Potential Job Losses due to Tax Increase
In a stark warning, UK fashion and home goods retailer Next has forecasted a decline in sales for its stores by 0.6% during the second half of the year, despite adding new outlet space. The group's online business growth is expected to slow significantly, with a decrease to 3.6% from the previous 9.2% in the first six months.
Chris Beauchamp, chief market analyst at IG Group, described the weak forecast as "a bit different," pointing towards low growth and tough times ahead. The group's shares fell more than 4% in morning trading on Thursday, reflecting the bleak outlook for the UK economy.
Despite the challenging forecast, Next reported a 13.8% rise in underlying pre-tax profits to £515 million for the six months to the end of July. The retail giant's UK performance during the first half was boosted by better-than-expected summer weather and disruption at rival Marks & Spencer after its online trading was hit by a major cyberattack.
However, the group warned that UK sales growth will pull back sharply to 1.9% in the final six months of its financial year, against 7.6% in the first half. This slowdown is attributed to the absence of favourable factors, a weakening economy, and dampened consumer spending.
To offset rising costs, Next plans to increase prices by 1% over the second half. Within its own business, job vacancies are down 35%, with steeper falls within stores. The group's CEO, Lord Wolfson, stated that the firm's UK sales will be affected by falling shopper confidence due to a faltering jobs market after the increase in national insurance contributions (NICs).
Lord Wolfson, a Conservative life peer, has been vocal about slow economic growth in the United Kingdom, citing issues like declining job opportunities, rising taxes, and government spending beyond means. He has warned of years of "anaemic growth" in the UK economy and cautioned against hitting the economy with another tax blow similar to the NICs increase ahead of the November 26 Budget.
The group trades in 83 countries already and Lord Wolfson said it would expand in growing markets. In contrast, the international business will help Next weather the storm, with the firm forecasting full-year overseas sales to soar by 23.8%. Applications have jumped 76%, with numbers per vacancy 2.7 times higher than two years ago, indicating a challenging labour market.
Despite the challenging environment, Next stuck to its recently upgraded full-year profit guidance for group sales to rise by 7.5% and profits to increase by 9.3% to £1.11 billion. The retail giant remains optimistic about its future, looking to expand in growing markets and adapt to the changing economic landscape.
