- Annual profits reach £1 billion
- Strong start to new year
- Sales and profit guidance lifted
Clothing and homeware retailer Next (NXT) has defied the well-documented macroeconomic doom and gloom by delivering yet another upgrade to sales and earnings guidance.
Shares in the retail bellwether bounced 7.5% to £107.20 after annual pre-tax profit breached the £1 billion milestone for the first time and the group raised its current-year sales and profit forecasts after a strong start to the new financial year.
£20 MILLION PROFIT UPGRADE
Revenue and earnings for the year to January 2025 came in slightly ahead of previously upgraded forecasts following a strong finish to the final month of the year.
Total sales rose 8.2% to £6.32 billion, driving the best-in-class retailer’s adjusted pre-tax profit up 10.1% to £1.01 billion.
Led by chief executive Simon Wolfson, Next upgraded its year-to-January 2026 full-price revenue growth forecast from 3.5% to 5% and bumped up its pre-tax profit guidance by £20 million to £1.066 billion after seeing better-than-expected full-price sales in the first eight weeks of the new financial year.
It should be noted the upgrade was based on a first-half sales estimate hike, with management leaving second-half guidance unchanged.
This caution reflects a tougher second-half comparison and concerns UK tax rises in April will weaken the UK employment market, negatively impacting consumer confidence as the year progresses.
BEACON OF POSITIVITY
‘Despite the well-reported macro-economic struggles, Next continues to defy gravity with its performance,’ said Shore Capital.
‘In the sales guidance breakdown, we see particular steps up in online sales expectations, both in the UK and internationally, demonstrating the strength of Next’s multi-channel and multi-national offering in delivering growth.’
Russ Mould, investment director at AJ Bell, pointed out Next’s strategic shift to broaden the choice for shoppers is paying off. Next sells its own products directly and through third parties, thereby widening the reach for its goods.
Next also sells third-party products through its website to boost the chances of site visitors finding something they want and not opening a new tab and looking elsewhere.
‘The foundations have been laid and the strategy is humming along nicely,’ said Mould. ‘Now comes the next part - how to accelerate sales momentum and become a bigger beast in global retail. That will involve enhancements to online services, delivery, marketing and developing stronger third-party relationships. Sounds easy, but it’s not. It will take a lot of hard work and persistence to elevate Next’s position on a global scale.’
Mould added: ‘For Next, being in a strong position means it is better placed than many rivals to cope with market turbulence. The weakest could fall to the wayside, while Next could gain market share. The key is avoiding a big slump in profits and a lot of that is out of the company’s control given external forces at work.’
Begbies Traynor’s (BEG:AIM) Julie Palmer observed that while Next’s size means it should emerge relatively unscathed from tax rises, ‘questions will remain over the future of its bricks-and-mortar stores, particularly in the wake of recent high-profile closures. As its UK Retail division was the only segment to report negative results the market will be keeping a close eye on whether a brand that has been such a beacon of positivity for UK retail will revitalise or consider shrinking its physical presence.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
