Next notches up further sales growth but cautions over supply and inflation

Next is anticipating that inflation will hit demand for more discretionary purchases as households tighten their belts. Picture by Ian West/PA Wire.

RETAIL giant Next has posted another leap in sales, but said stock availability remains "challenging" amid supply chain problems and labour shortages.

The fashion and homewares chain reported third-quarter sales up 17 per cent versus two years ago after a better-than-expected recent performance, though it still forecasts growth to slow to 10 per cent over its final quarter.

It said this was down to a lessening of pent-up demand, while growth is also set to be hampered by supply issues, with disruption ongoing despite recent improvements.

It added that soaring inflation is likely to hit demand for more discretionary purchases as households tighten their belts.

The group raised its full-year sales growth outlook to 11 per cent from the 10.7 per cent previously forecast, but kept its profit guidance at £800 million.

Next said: "Stock availability has improved but remains challenging, with delays in our international supply chain being compounded by labour shortages in the UK transport and warehousing networks.

"However, to date, stock limitations appear to be offset by strong underlying demand."

It added: "Although consumer finances are in good shape, price increases in essential goods (such as fuel) may moderate demand for more discretionary purchases."

The firm said sales in the last five weeks of the quarter to October 30 rose by 14 per cent on a two-year basis, which beat its earlier guidance of 10 per cent and generated around £4m more of profit than expected.

But the group said this was set to be offset by slowing sales growth in the fourth quarter, as well as higher costs of air freight and other distribution costs in the difficult supply conditions.

Next is also investing further in online marketing.

At its half-year results in September, the group warned over price hikes due to supply chain disruption and said staff shortages could impact its deliveries in the run-up to Christmas.

Next said some areas of the business were starting to come under pressure from a lack of foreign workers, particularly in logistics and warehousing, which may affect its delivery service going into the peak festive season.

It said higher freight costs had pushed up prices by about two per cent in its half-year and predicted further increases of around 2.5 per cent on average in the first six months of 2022.

But the firm has been enjoying strong demand thanks to a strong online capability and as lockdowns have lifted, with annual profit forecasts upgraded four times this financial year.

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