Next warns of clothes price hike

LONDON (Reuters) - Next, the No. 2 fashion retailer, said consumers are facing near double-digit price rises for clothes next year, as it posted a slightly bigger-than-expected fall in third-quarter sales at its shops.

The group, which runs over 500 stores in Britain and Ireland as well as the Directory home shopping business, said on Wednesday it expected fourth-quarter total sales growth to be lower than the third quarter’s 2.2 percent but maintained its guidance for year to end-January 2011 profit.

“We’re planning very conservatively for 2011 but not (for) a disaster,” Chief Executive Simon Wolfson, who was named a Tory working peer in May, told Reuters in an interview.

He warned that due to further rises in the price of cotton, retail price increases were likely to be at the top end of Next’s previously stated 5-8 percent range for the first quarter of 2011. Higher rises could follow in the second quarter.

“Because we’ve bought most of the stock for the first-quarter of next year we can be fairly confident that our number at the top end of that range is right,” said Wolfson, who has just returned from a visit to factories in Bangladesh and India.

“We still haven’t contracted for the second quarter and if cotton prices continue to go up then that may nudge that (range) up. The price of cotton seems to be moving very rapidly and somewhat irrationally and it’s very difficult to make a call.” Wolfson’s comments on prices chimed with a survey from the British Retail Consortium which earlier showed a pick-up in shop price inflation.

“The Q3 statement was generally OK from a profit point of view ... but has added another layer of uncertainty on pricing in 2011 that is not very helpful,” said analysts at Credit Suisse.

Next said sales at shops open at least a year fell 3.3 percent in the third quarter to October 30. That compares with analysts forecasts for a fall of 0.3-3 percent, according to a Reuters poll, and a second-quarter decline of 2.2 percent.

That shortfall was offset by Directory sales growth of 7.9 percent, which compared with forecasts of a rise of 5-8 percent and a second-quarter increase of 11.8 percent.