British fashion retailer Next (NXT.L) reported a better-than-expected 5.7% rise in annual profit on Wednesday and said it would not need to increase prices by as much as previously thought.
However, it still expects higher spending on wages, energy and technology to reduce its profit this year, and the retailer's shares were down 6% in morning trading after it retained its cautious outlook.
Next, which trades from about 500 stores and online and is often considered a good barometer of how British consumers are faring, said inflationary pressures were expected to ease as freight costs drop and the cost of goods improves, Reuters reported.
The company has shown more resilience than most to the cost-of living crisis in Britain and is considered by analysts to be one of the best run retailers in the country. Its shares had been up 16% this year prior to Wednesday's update.
It now expects 7% like-for-like price inflation in the spring-summer season and 3% in autumn-winter - down from its previous forecast of 8% and 6%, respectively.
That reflected a significant drop in container freight costs and improving factory gate prices - the price at which it purchases goods - due to increased factory capacity and efforts to move production to lower priced sources of supply.
"We still anticipate we'll be moving production out of China and into other regions like Bangladesh, India, South East Asia," CEO Simon Wolfson told Reuters.
"But if I look at the things that are moving the dial, it's more within those territories, finding new sources of supply rather than moving countries."
Next's improved price outlook fits with a Bank of England forecast for inflation to fall from its 10.4% annual rate in February to below 4% by the end of 2023.
Next made a pretax profit of 870.4 million pounds ($1.07 billion) in the year to January 2023, up from 823.1 million pounds the year before and above its 860 million pound guidance.
Sales of items sold at full price rose 6.9% in 2022-23, with total sales up 8.4% to 5.15 billion pounds.
For 2023-24, Next kept its forecast for a 1.5% decline in full-price sales and profit of 795 million pounds.
It expects its sales performance in the first half of the year to be weaker than in the second half.
In the first half last year, unusually warm summer weather coincided with the release of pent-up demand for events after the pandemic.
In the first eight weeks of its new financial year, full-price sales were down 2.0%, in line with its expectations.
Wolfson said he did not think the downturn in the UK economy would be long lasting and anticipated a strong recovery in 2024.