Next announces 7.1% profits rise but warns of price hikes to pay living wage

Retail chain Next saw profits rise 7.1% in the first half of the year, but warned it might have to hike prices to pay its staff the living wage.

Pre-tax profits hit £347.1 million for the half year to July, up from £324.2 million a year earlier. Investors reacted positively to the news, with the share price rising 2% in early trading.

Next said the impact of the living wage would be "manageable", but warned of possible price hikes as it faces soaring wage costs.

The living wage requires that all staff over 25 be paid a minimum of £7.20 an hour from next April, rising to at least £9 an hour by 2020.

The retailer estimated the cost of implementing the living wage to be £2 million for next year, but said it could rise to £27 million a year as the requirement grows.

Only £11 million of that cost will go towards ensuring all staff are paid the minimum level, with £16 million used to maintain pay differentials between members of staff.

These additional costs could mean a 1% price hike for consumers.

However, it added this was a "pessimistic view of the required price rise" as it had assumed no improvements in productivity.

"In summary ... we believe that the burden is manageable," it said.

However the company cautioned that overall wage rises would add a further £120 million to annual costs. This could add a further 5% to price rises, meaning an increase of 6% by 2020 as a result of wages.

The company reported a 0.2% rise in sales across its stores in half-year figures, while Next Directory sales surged by 8.2%.

Full-price brand sales were 3.3% higher and the group said it was maintaining its guidance for the full year, with brand full price sales expected to be up between 3.5% and 6%.

"This implies that sales in the second half will be up between 3.5% to 7.5%," Next said.

It added: "At first sight guidance for the second half might appear optimistic, given that we only achieved full price sales growth of 3.5% in the first half.

"However last year was unusually strong in the first half and much weaker in the second half, with sales in September, October and early November adversely affected by unusually warm weather."