High street giant Next is poised to report a fall in full-year profits this week, as the market looks for any signs of price hikes to mitigate the effects of the plunging pound.
The retail bellwether is expected to reveal a 4% slide in annual pre-tax profits to £792m (€913m), down from £821.3m (€947m) last year, as a shift in spending away from clothing and footwear takes its toll on sales.
The group said in January that it predicts overall full-price sales to fall by 1% after tough trading over Christmas sparked a 0.4% fall in the quarter to December 24.
Chief executive Lord Wolfson, a pro-Brexit campaigner, has also warned that the cost pressures driven by the Brexit-hit pound could see it hike prices by up to 5%.
Graham Spooner, investment research analyst at The Share Centre, said: “The market will be hoping for better news from clothing retailer Next following its fourth quarter trading update in early January which showed Christmas sales at high street stores below expectations.
“A major issue for the group is the increase in import costs due to the weak pound and investors are keen to see if that is going to be passed on to customers or absorbed by the company.”
Lord Wolfson offered a gloomy outlook for Next when he updated the market in January, forecasting 2017 to be “even tougher” for the firm and 2018’s profits to tumble to between £680m and £780m (€784m and €900m).
He said that while the Government was right not to be rushed into a Brexit plan, fears over the negotiations would heap further pressure on an embattled retail sector.
“It will take them time and we have to be patient, but there will be uncertainty in the meantime.”
It comes after high street rival Marks & Spencer saw its flagging clothing arm return to sales growth for the first time in nearly two years when it updated on Christmas trading in January.
The firm said said like-for-like sales in its clothing and home division rose 2.3% in the 13 weeks to December 31, the first growth since the January to March quarter in 2015.
However, chief executive Steve Rowe stressed there was more work to do in turning clothing sales around and suggested this quarter may not mark a return to sustained sales growth.
Retailers face a choppy road ahead as consumers brace for a spending squeeze, with inflation reaching a two-and-a-half-year high at 1.8% in January and retail sales unexpectedly falling by 0.3% in the month.
Ballooning import prices triggered by the Brexit-hit pound are a key factor behind the rise in everyday prices as companies pass their soaring costs to consumers.