UK trading: has the consumer turned a corner?
UK full-price sales rose 7.7% in the first half, but growth slowed from 6.2% in the first quarter to 9.2% in the second quarter for the group as a whole. Within the UK, sales growth eased from 4.4% to 2.8%.
The second-quarter performance was affected by unusually warm weather, which NEXT said had supported demand, as well as a release of pent-up demand in some overseas markets. The retailer also benefited from being able to spend more on profitable marketing than it had initially anticipated.
The UK outlook subsequently became more cautious. NEXT warned that inflation, higher mortgage costs and a weak jobs market could weigh on household spending, particularly if tax increases in the government’s autumn Budget further undermine consumer confidence.
The trading statement should provide a clearer picture of whether the domestic market has stabilised. Investors will be watching for a breakdown between online sales and stores, as the two channels have been performing differently. In the first half, UK online sales were more resilient than store sales, with the latter particularly exposed to subdued high-street footfall.
Weather will also be an important factor. A colder October could have encouraged purchases of coats, knitwear and other seasonal clothing after a relatively mild start to autumn. However, any improvement needs to be assessed against the wider consumer backdrop and the extent to which shoppers are willing to spend at full price rather than wait for promotions.