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Next sees share soar, but profit forecast looks bleak

The UK fashion retailer watched its share price rise on Wednesday morning despite downgrading its full-year profit outlook.

Next has seen its share price rally by more than 5% on Wednesday, up from £41.59 when markets opened and hitting as high as £44.70.

The rise in share price will come as a surprise to some as the UK fashion retailer announced a small downgrade to its full-year profit outlook in a recent trading update and forecasts a dip in profit in its next fiscal year.

Next reduced its guidance for full-year profit from £727 million to £723 million, blaming lower margins on beauty products in the build-up to Christmas and higher costs linked to satisfying online orders, with more and more of its sales made online, while high street sales continue to decline.

In fact, sales across Next’s 540 stores fell by 9.2%, while online sales picked up the slack, rising by around 15% in comparison.

Next uncertain about Brexit and UK economy in 2019

In its recent trading update, the fashion retailer said that it expects 2019 to offer a similar economic environment to the one it went through in the latter half of 2018, with the company forecasting retail sales to be down 8.5%, while online sales increasing 11%.

The company was quick to note that ‘any sales forecast made in January comes with a high degree of uncertainty’, with the fashion retailer admitting that it is unclear how the UK economy will perform after Brexit and that Britain’s withdrawal from the EU is making forecasting ‘particularly difficult’.

2018: a disappointing year for retail

The UK fashion retailer will relish its recent rise in share price after its stock ended 2018 down 10% after investors grew skittish ahead of Christmas in what was one of the largest sell-offs in a decade.

Next was not alone, however, with Sports Direct founder Mike Ashley commenting about just how challenging the retail environment had become last year, while online rival ASOS was forced to issue a profit warning after sales slumped.

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