High avenue large warns of retailer closures regardless of revenue forecast of £1bn

High street giant Next has warned of possible store closures, despite positive profit forecast, after losing a landmark legal case over equal pay.

The clothing and homeware retailer is planning to appeal against last month’s decision, which saw more than 3,500 former and current workers at the company win their pay claim after a six-year legal battle.

An employment tribunal ruled that Next failed to demonstrate that the lower basic wage paid to sales consultants compared with warehouse operatives was not the result of sex discrimination.

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Next, which is led by chief executive Lord Wolfson, cautioned that while the company was confident of winning its appeal, if it did not, it could be forced to shut shops due to soaring costs.

This is despite the group upping its annual profit outlook for the second time in less than two months. It raised its annual profit forecast to nearly £1bn on the back of better than expected sales.

The FT reported that Next lifted its pre-tax profit forecast for the year by £15m on Thursday, to £995m — an increase of 8.4 per cent on the previous year’s result.

In its half-year results the group said, however, that a loss in an appeal to the tribunal findings would mean a financial hit.

“In the possible (but unlikely) event we lose this case on appeal, there will be a financial cost to the group and its ongoing future operating costs,” it said.

It added: “Each of our stores is treated as a business in its own right, and must remain individually profitable if they are to open in the first place and continue trading at lease renewal. Inevitably some of our stores will no longer be viable if this ruling is upheld on appeal.”

The company continued: “Materially increasing store operating costs will result in more shops being closed when their leases expire, and will materially impede our ability to open new stores going forward.”

Next also said that the case could have an impact on the “viability of our warehouse operation” if it cannot increase pay for workers at the sites.

“If, for many people, warehouse work is less attractive than work in stores… how can a warehouse attract the number of employees it needs?” the group said. The company said its legal team was “very confident of our grounds for appeal”, but said that the process might not conclude for at least a year.

Next’s comments came as the group upped its annual profit outlook for the second time in less than two months and said prices of its ranges would fall over autumn and winter. The chain reported a 7.1% jump in underlying pre-tax profits to £452 million for the six months to July 27 as total group sales lifted 8%.

It said UK sales rose by just 1%, dragged lower by its Next brand ranges, which saw sales fall as much as 7.4% in June because of poor demand for seasonal collections amid the cooler early summer weather.

But overseas sales surged 23% in the first half, and the firm also said UK trading since the half-year was “materially” better than expected as the weather improved over August.

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