Shares rise by more than 8% after strong sales and says it is well-prepared for no-deal exit

Next has warned that a no-deal Brexit could lead to disruption at UK ports and higher prices in its shops, but shares in the company soared as the fashion and homewares retailer said the long hot summer had bolstered sales and profits.

The retailer’s shares climbed by more than 9% on Tuesday, making it the biggest riser in the FTSE 100, after Next said sales had risen by 1% more than expected, strengthened by the heatwave.

When Next updated investors in August, the chief executive, Simon Wolfson, said early summer sales had been boosted by the heatwave and he feared a slowdown in August and September.

Next warns of port delays as biggest Brexit risk – business live Read more

However, that slump did not materialise and on Tuesday the retailer increased its profit forecast for the year to the end of January by £10m to £727m, which would be in line with last year.

The group reported flat pre-tax profits of £311.1m on sales of £2bn for the six months to the end of July.

“We believe the overperformance in the first half was flattered by the unusually warm summer and we remain cautious in our outlook for the rest of the year,” Wolfson said.

Online sales drove first half growth, while sales in stores fell back, prompting Next to slate 22 stores for closure this year compared with 14 last year. A further 25 are being kept on without a lease and could be closed at any moment. Next also now expects to open 60% less space than it believed it would six months ago, reflecting a shakeout across the high street that has prompted rivals including Marks & Spencer, Debenhams and New Look to close stores.

In the half-year, Next sold more goods online than in stores for the first time as Wolfson said the retail industry was undergoing a “profound shift” towards online shopping in an environment that was “extremely challenging”.

“That’s not going to go away. It doesn’t mean that there won’t be any shops in 10 years’ time. Our job is not to guess what is going to happen but to make sure we are flexible enough and disciplined enough to handle whatever it is,” he said.

Wolfson, a prominent Vote Leave supporter, said the Leicester-based retailer was also preparing for the possibility of a no-deal Brexit, devoting 10 pages in its Stock Exchange update to the topic.

The biggest risk to the business, Wolfson said, was the likelihood of queues and delays at UK and EU ports, while a sharp fall in the value of the pound and increased tariffs also posed a threat. Next has set up new companies in Ireland and Germany as part of its planning.

“Departure from the EU without a free trade arrangement and managed transition period is not our preferred outcome,” said Wolfson, who is a Conservative peer. “However, Next is well-prepared for this eventuality and we have all the administrative, legal and IT framework in place to ensure that we are able to carry on running the business as we do now.

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“We believe that the biggest risk to our business is the external risk of UK ports not coping with the additional volume of customs work they would be required to undertake if no changes are made to the UK’s current procedures,” he continued.

He suggested that Dover, where the majority of goods imported from the EU by sea arrive in the UK, was likely to come under the most pressure if the government didn’t take action to streamline processes. Wolfson said the “trusted trader” scheme which allows checks on some companies’ vehicles and drivers to take place inland could be extended and customs duties handled via self-assessment, in the same way as VAT, to reduce the administrative burden at ports.

“Whatever your view on Brexit, no one can think it can be a good thing for the ports not to be prepared,” he said.

Wolfson also called on the government to clarify policy on import tariffs in the light of a no-deal Brexit. He said the UK should consider lowering tariffs on goods from countries outside the EU to help offset tariffs on goods from the EU, which would kick in if there was a no-deal Brexit under World Trade Organisation rules.

Next said about 10% of its stock came from the EU and Turkey and in the “unlikely event” that the UK did not replicate free-trade agreements with countries such as Mauritius and Morocco, it would face paying up to £20m in additional duty, a figure that would add less 0.5% to its prices.

“In reality some of these additional costs would be shared with suppliers or eliminated through alternative sourcing routes,” said Wolfson.