Next has increased its profit expectations for the current financial year for the fifth time to 5% following better-than-expected sales in the weeks to Christmas.

The high street retailer now expects to make pre-tax profits of £905m this financial year, an increase of £20m on the previous estimate.

However, Next has warned that sales could be affected as a result of the disruption in the Suez Canal which is causing issues with supply chains.

Equity analyst at Hargreaves Lansdown, Aarin Chiekrie, said: "Next’s Christmas trading update gave investors plenty to be jolly about. There was a 5.7% increase in full-price sales over the nine weeks to 30 December, which ultimately led the group to nudge up its profit guidance. Full-year pre-tax profits are now expected to come in £20mn higher at £905mn this year, continuing the group’s hot streak of beating its own guidance.

"Successfully keeping full-priced sales front and centre to avoid discounts is one of the reasons Next can boast some of the best margins in the sector. But it’s a tricky strategy to nail, especially alongside expanding its online presence and introducing third-party brands to its offering."

In the second half of the year to 30 December 2023, full-price retail sales did not change compared the first six months of the year, but online sales increased by 7.7%. Overall, sales increased by 4.7% in this period.

Looking forward, the retailer expects full sales prices on its core business to be up 2.5% on the current year, excluding any increase in group turnover relating to the acquisition or growth in subsidiary companies and equity investments.

Head of markets at interactive investor, Richard Hunter, added: "The retail industry is rarely given a clear run and events over the next year could yet provide more obstacles. Any deterioration in the UK economy which results in higher unemployment and a further strain on disposable incomes would be a clear headwind, as the lagging effects of interest rate rises continue to wash through.

"In addition, the current difficulties around the Red Sea and the Suez Canal could impact the supply chain of they persist. More positively, Next remains on the alert for potential acquisitions as some of its rivals continue to struggle, cost inflation is at last falling to manageable levels and wage rises are currently keeping pace with inflation more generally."

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