Next results signal a good Christmas for UK retailers

Next has raised hopes for the retail sector by revealing a better than expected Christmas, with strong online sales offsetting a fall at its high street stores.

In a trading statement, the clothing and home chain said sales rose 1.5% in the 54 days to 24 December. A fall of 0.3% had been forecast.

Shares in Next, the first major retailer to report on festive trading, jumped almost 10% in early trading. Marks & Spencer and Primark-owner Associated British Foods were also up, rising about 3%, on hopes that they may also have fared better than expected.

The retailer upgraded its profit expectations for the year to January by £8m, to £725m, after sales benefited from the colder weather in the run up to Christmas. Profit guidance is now between £718m and £732m and performance will depend on the clearance sales in January.

Next said that all its growth came online, where sales rose 13.6%. The chain’s high street stores suffered a 6.1% slump. That pattern is expected to be repeated across the retail sector as companies including Marks & Spencer, Debenhams, John Lewis and House of Fraser next week reveal how they fared over the most important part of the trading year.

Retailers were expected to have suffered a tricky trading period after several reported poor autumn sales. Next shares dived in October after it warned of “extremely volatile” trading, with shop sales falling.

Despite Next’s better than expected Christmas, the company warned of a difficult year ahead in which profits were likely to fall. It said costs were likely to rise by about 2% in the first half of the year while sales would rise by 1%.

“Many of the challenges we faced last year look set to continue into the year ahead. Subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in our cost prices remain challenges for 2018,” the company said in a statement.

But Next, which is led by Tory peer Lord Simon Wolfson, said cost price inflation was easing and was likely to disappear in the second half of the year.