Next warns of Brexit costs impact as shop sales fall


High street giant Next warned over soaring costs from the Brexit-hit pound as it posted another fall in sales.

The group said its buying costs could rise by up to 5% in the year to the end of January 2018 after the value of the pound has been sent plunging since the EU referendum.

Next posted another steep fall in sales - down 3.3% for its retail shops in the second quarter to the end of July - while its Next Directory arm recorded a 5.7% rise.

But a better-than-expected end-of-season sale performance helped limit the fall in total store sales, including markdowns, to 0.7%.

The group said there was "no clear evidence" of a hit to consumer confidence since the Brexit vote, although it warned that trading conditions will remain tough for the rest of the year.

It is expecting sales falls to worsen in a "particularly challenging" third quarter as it also comes up against tough comparisons from a year earlier.

Next said it had been able to protect itself against falls in the value of the pound for the current year to January 2017, but that its input costs could rise by around 9% for the next financial year.

It is hoping to offset much of this, partly by switching some of its product buying to new areas such as Bangladesh, Cambodia and Burma.

But the group warned that cost prices will nevertheless rise by up to 5% for 2017/18 even after taking action to limit the impact.

The chain's second-quarter sales fall was better than feared and marks an improvement on the 4.7% plunge it saw in its high street stores in the previous three months.

It said the worst-case scenario for annual profits was now not as bad as expected, pencilling in a range of £775 million to £845 million.

This would mean profits could fall by up to 5.6% or rise by as much as 2.9%.

It had previously warned that profits could tumble by up to 8.9%.

But it added that trading remained under pressure.

The group said: "Trading remains extremely volatile and on a week-by-week basis is highly dependent on the weather.

"This volatility is indicative of the underlying weakness of consumer demand for clothing, which we believe we began to experience in October 2015."