Shares of companies that rely on consumer spending plunged after fashion home retailer Next cut its second-half sales forecast and full-year profit forecast.
The company took advantage of the release of its half-year results at the end of July to say that there were too many variables at play in the middle of the cost of living crisis have great confidence in determining future consumer demand.
Next, which is widely regarded as the most regular player on the high streets, said it had a stronger than expected first half with full price sales up 12.4% on the same period last year.
Pre-tax profit of £401m was 16% higher.
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But he revealed sales suffered in August before some demand returned in the current month.
Next, which trades in around 500 stores and online, said it now expects full-price sales to fall 1.5% in the second half.
He had previously guided a 1% increase.
The full year pre-tax profit forecast fell by £20m to £840m, but still represented a 2% increase on 2020/21.
Shares in the company fell 10% in early trades, while those of high street rivals and other consumer-facing stocks also suffered.
The FTSE 100 and FTSE 250 indices were both down more than 2% at one point, while growing recession fears were also evident on the continent, with Germany’s DAX and France’s CAC also significantly lower.
Those hardest hit on the London Stock Exchange included homebuilders and personal investment platforms.
Next said he hoped to “see benefits from recent government measures” – namely help with household energy bills – but admitted it was difficult to get a clear picture of what lies ahead.
The economy is facing challenges on many fronts, with the pound hitting record highs this week and government bonds coming under heavy pressure after the mini-budget, prompting Bank of England intervention.
The pound – at $1.08 – and bond yields – the interest rates charged to hold UK government debt – were relatively flat on Thursday morning as the prime minister defended the government’s growth plan and its management following the backlash of the market.
The pound fell against the euro at midday as German inflation data came in nearly 1% above expectations – at 10.9% – triggering higher interest rate expectations ahead of the next political meeting of the European Central Bank.
Next chief executive Lord Simon Wolfson has told an analyst his concerns about the upcoming currency.
“The devaluation of the pound looks set to prolong inflation, even after ex-factory prices ease.
“It looks like we’re about to have two cost of living crises: this year a supply squeeze, next year a price hike on the currency as the devaluation takes effect.”
“There are so many variables at play – energy, freight, employment, taxation, economic migration, exchange rates, etc. – that today, more than ever, it is not possible to predict the future on the basis of the past,” Next said. .
“It has been over 40 years since the UK experienced an inflationary shock on the scale we are witnessing today; and the UK economy of the 1970s – with its reliance on heavy industry heavily subsidized and geographically concentrated – was incomparably different from today’s economy.
“We have used our recent transactions, as well as some internal and external economic data, to paint a picture of what we believe is happening and how the business is likely to be affected over the coming months. .”
The company’s results followed weak recent business updates from rivals including Asos, Boohoo and Primark.
Charlie Huggins, head of equities at Wealth Club, said of the upcoming results: “The fact that many retailers are struggling should come as no surprise.”
“This is arguably the toughest business environment since the 2008/09 financial crisis. Inflation is at levels not seen in four decades.
“The pound is in the doldrums, trading at its weakest level against the dollar since 1985. Add to that the war in Ukraine and the specter of another interest rate hike. It’s not exactly conducive for consumers to restock their wardrobes.
“Perhaps the biggest problem for the whole industry is that even though things look tough right now, they should get even tougher.
“This is due to the precipitous fall in sterling which will only exacerbate inflationary pressures.
“Next appears better positioned than most of its peers to weather the storm and emerge stronger in light of its high margins, robust cash flow and strong balance sheet. But 2023 could be a very challenging year considering how things are going.”