British clothing retailer Next forecast lower profit in its 2023-24 year, reflecting uncertainty over whether consumers would keep spending during a recession and as the group’s costs rise.

Next trades from about 500 stores and online and is often considered a gauge of how British consumers are faring. It is the first major UK apparel retailer to report on Christmas trading.

The group raised its pretax profit forecast for the current year which ends this month to £860 million ($1 billion) from a forecast of £840 million previously after full price sales rose a better than expected 4.8 percent in the nine weeks to Dec. 30.

But it said it was cautious in its outlook for the 2023-24 year, forecasting full price sales down 1.5 percent and pretax profit of £795 million, down 7.6 percent on 2022-23.

Prior to the update analysts were on average forecasting pretax profit of £783 million for 2023-24, according to Refinitiv data.

Next said consumer demand in 2023 was likely to be dampened by inflation, particularly in energy, by rising mortgage costs as consumers’ fixed interest rate deals expire, and by price rises in its own products.

“On a more positive note, we expect employment to remain strong so are not anticipating a collapse in demand or any increase in bad debt over and above our current provisions,” it said.

Next said it expected cost price inflation on like-for-like goods to peak at around 8 percent in the Spring/Summer season, falling to no more than 6 percent in the second half.

It said selling prices would be broadly in line with the increase in cost price inflation.

Next also highlighted increases in UK operating costs, mainly as a result of wage inflation and energy costs.

It said fourth quarter store sales were up 12.5 percent while online sales rose 0.2 percent, with both channels exceeding its expectations. It said it saw a dramatic boost to sales when the weather turned cold in December.

The group has shown more resilience than most to the cost-of living crisis and is considered by analysts to be one of the best run retailers in Britain but its shares are still down 23 percent over the last year.

By James Davey; Editors: Kate Holton and Emelia Sithole-Matarise

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Next Cuts Profit Forecast as Shoppers Feel the Squeeze

Next, which trades from about 500 stores and online, said it now expected full price sales in its second half of its financial year to fall 1.5 percent, and a full year pretax profit of £840 million ($905 million), up 2.1 percent versus 2021-22.