Next PLC on Thursday lowered annual guidance as the clothing and homewares retailer said tough trading in August and cost-of-living pressures will offset any boost from recent UK government stimulus measures.

The company also noted the weak pound, saying it will further increase prices.

Next shares fell 8.6% to 4,866.00 pence each in London on Thursday morning.

In the half-year that ended July 30, revenue climbed 12% to £2.38 billion from £2.12 billion a year earlier. Pretax profit advanced 16% year-on-year to £400.6 million from £346.7 million.

Full price sales advanced 12% year-on-year in the first half, though the company now expects a decline for the second half. Full price sales are expected to shrink by 1.5% year-on-year. It had previously guided for 1% growth.

Next also lowered its bottom-line guidance. It now expects annual pretax profit of £840 million, down from the previous £860 million guidance, but up 2.1% on last year, when it was £823 million.

‘August trade was below our expectations and cost of living pressures are set to rise in the coming months. Sales in September have improved, and we may see benefits from recent government measures,’ Next said, adding that the decision to lower full-price sales guidance was a ‘very difficult call’.

Next, returning to a normal dividend cycle, declared a 66 pence per share interim payout. It expects to declare a final dividend ‘no lower than’ the 127p it paid in August.

Looking ahead, the bellwether retailer said: ‘As inflation begins to bite, it seems inevitable that clothing and homeware growth will slow if not reverse; though employment and savings levels are both at healthy levels, which provides some comfort. It is too early to tell what impact government support will have, though it seems likely that the scale of the measures announced recently will serve to support spending in some way’.

Next added that in the medium-term the UK economy could be stimulated by supply-side reforms.

Further, the company noted the weak pound, which will ‘inflate selling prices’ especially in the second half of its financial year.

Sterling bought just under $1.08 early Thursday, down from $1.16 when the month began.

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