British clothing retailer Next reported on Thursday a 10 percent rise in annual profit but trimmed its guidance for 2022-23, with a better than expected start to the year in its home market offset by a deteriorating picture overseas.

Shares in Next, which trades from about 500 stores and online, were down 3.5 percent by 11:25 GMT, extending losses over the past year to 16.8 percent, after the group lowered its sales guidance for the current year by £85 million ($112 million) and its profit guidance by £10 million.

The cut to guidance reflected the closure of Next’s websites in Ukraine and Russia, and the moderating of growth expectations in some other overseas markets.

Next also warned of further disruption to supply chains and prices as a result of Russia’s invasion of Ukraine.

CEO Simon Wolfson said Next’s selling prices would likely rise by 8 percent in its second half due to higher freight rates and increased manufacturing costs, though he maintained a forecast for prices to rise by 3.7 percent in the first half.

Next said UK sales so far this year were ahead of where it expected them to be, driven mainly by better-than-anticipated sales in its stores and it raised its expectations for total UK sales in the year by £45 million.

It highlighted a very sharp reversal of lockdown fashion trends, with a return to more formal dressing and a notable reduction in spending on home and very casual clothing.

Next has proved a resilient performer during the Covid-19 pandemic, benefiting from its long-established online operations.

However, with Britons facing the biggest hit to their living standards since records began in the late 1950s from higher energy, fuel and food prices as well as higher taxes and mortgage rates, Next is concerned that discretionary spending on clothing and homeware could be hit.

It also flagged that a post-pandemic return to spending on overseas holidays and other social activities rather than on clothing.

The group made a pretax profit of £823 million in the year to January 2022, in line with guidance, on full price sales up 12.8 percent versus pre-pandemic 2019-20 results.

Its new forecast for the year ending January 2023 is full price sales growth of 5 percent and a pretax profit of £850 million.

But Wolfson cautioned: “From an economic perspective, it is hard to recall a time when sales have been harder to forecast.”

By James Davey; Editors: Paul Sandle and Susan Fenton

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