Next cuts profit targets amid gloomy consumer outlook

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30th September 2022

Bite-sized business news from the UK and beyond
Good morning If you have ever dreamed of living elsewhere, now’s your chance to get paid for it...sort of. The Italian island of Sardinia is offering people up to €15k to move there. The work-from-beach dream has a catch: you have to spend the cash on renovating a newly purchased home and move there full-time. 
Today's stories
  • Next cuts profit targets amid gloomy consumer outlook
  • Porsche defies rocky market to make historic debut
RETAIL
Next cuts profit targets amid gloomy consumer outlook

 
What happened?
Next raised the alarm on a bleak consumer outlook into 2023 as it announced it was downgrading its revenue and profit expectations blaming the cost of living crisis.

How did we get here?
Last year Next upgraded its profit targets five times in 10 months – as it benefited from the reopening of the high street post lockdown - making it the darling of FTSE 100 investors. But yesterday it delivered its second profit warning of 2022 and a bleak verdict on the UK consumer.

The fashion and homeware retailer warned that the drop in the value of the pound against major currencies like the US dollar would make imports more expensive, driving even higher inflation. The company believes that the extra pressure on household incomes will reduce demand for its goods – it now expects annual sales to fall by 1.5%, rather than rise by 1%, and profits to be £20m lower at £840m.

There were signs of weaker demand in August, as customers cut back on big ticket items like furniture, before a rebound in September. 

Next says it’s not just a cost living crisis it has to contend with. CEO Lord Wolfson said “There are so many variables at play – energy, freight, employment, tax, economic migration, exchange rates, etc – that today, more than ever, it is not possible to predict the future on the basis of the past”.

Next results caps another bad week for UK retailers
Shares fell 12% yesterday dragging down other UK retailers – Ocado and Pets at Home both dropped 10%. The company's results also followed underwhelming recent trading updates from rivals including Asos, Boohoo and Primark.
Other stories to keep you in the loop
  • Tax cuts are right plan for economy, says Liz Truss 
  • H&M to cut costs as profits hit by inflation, cautious shoppers
  • Just Eat appoints new executives as it eyes up profit
  • Softbank cuts staff at Vision Fund investment unit
  • Lidl ordered to destroy its Lindt-like chocolate bunnies by Swiss court
  • Grocery delivery app forecasts mass extinction for ‘majority, if not all’ rivals this year
  • Not On The High Street opens high street store 
  • New King Charles coined unveiled
  • Fears of layoffs as Facebook parent Meta reportedly announces hiring freeze
MANUFACTURING
Porsche defies rocky market to make historic debut


What happened?
Yesterday shares in luxury carmaker Porsche rose as much as 1.8% during its landmark trading debut on the German stock market. Owner Volkswagen set a price of €82.50 per share, valuing the company at more than €75bn in the largest IPO in Europe in a decade. 

How did we get here?
Volkswagen owns a suite of carmakers including Volkswagen, Audi, Lamborghini and Bentley. 

By selling just 12.5% of Porsche to investors, the listing raised €20bn. This will finance Volkswagen’s costly transition to electric vehicles.

Volkswagen plans to spend close to $90bn over the next five years on electric car development, with the ambitious goal of a quarter of total sales being electric by 2026.

The Porsche-Piech family, made up of direct descendants of the founder, will end up owning some 25% of voting shares in the company. They'll be hoping that Porsche shares will race higher as a result of the public listing, just like Ferrari's did in 2015 when the Italian company was spun out from its parent company, Fiat Chrysler.

Zooming out: Pulling off an IPO this year is a huge achievement for Porsche. The war in Ukraine, rising inflation and growing concerns of a recession has made 2022 a turbulent year for stock markets. Many companies have canned their plans to go public amidst the turmoil. In the first six months of this year there has been just 57 IPOs in Europe, down from 231 in the same period in 2021.
Stat of the day

This week the number of passengers using the London Underground on Mondays hit a post-pandemic record of 2.79m, the highest number since 9 March 2020
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