- Strong festive sales
- Online and international drive growth
- Tougher FY26 expected
First out of the blocks with its Christmas trading statement, fashion and homewares colossus Next (NXT) raised full-year profit guidance yet again following better-than-expected festive trading with online sales growth accelerating in the fourth quarter.
Shares in the FTSE 100 retailer ticked up 3% to £98.40 on the news, although gains were capped as guidance for the year to January 2026 came in below market expectations.
Lord Wolfson-led Next also warned it expects UK growth to slow as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy.
YET ANOTHER BEAT
Full-price sales grew by 6% in the nine weeks to 28 December 2024, ahead of Next’s guidance of 3.5% and the 3.8% consensus estimate, albeit flattered by the timing of the end-of-season sale.
Growth was driven by online sales which were up 6.1%, but Next’s UK retail sales went into negative territory with a 2.1% decline.
Meanwhile, overseas online sales, a key growth area for Next, remained very strong with a 31.4% increase.
The stronger-than-expected festive showing prompted Next to nudge up its year to January 2025 pre-tax profit guidance again, by £5 million to £1.01 billion, meaning the company will shortly be admitted to retail’s billion-pound-profit club.
For the year to January 2026, Next conservatively forecasts full-price sales to rise by 3.5% to £5.22 billion and profit before tax to be up 3.6% at £1.046 billion, with operating cost increases expected to overshadow cost savings, thereby holding back the retailer’s profit performance.
EXPERT VIEWS
AJ Bell investment director Russ Mould observed that low growth in Next’s finance interest income suggests consumers are being more cautious and are spending more of what they’ve already got rather than relying on credit and worrying about the consequences later on.
‘If Next is the bellwether for UK retail, it’s hard to be too excited about the sector’s near-term prospects,’ remarked Mould. ‘However, the positive market reaction to the trading update would imply that investors aren’t worried. They might simply view the slight miss to forward expectations as Next ensuring it has a low bar to clear next time. That’s fine if it can keep pulling a rabbit out of the hat, but the magic can’t last forever.’
Begbies Traynor’s (BEG:AIM) Julie Palmer dubbed Next’s performance ‘deeply impressive’, noting the FTSE 100 stalwart has been on a hot streak for a long time.
Next ‘could have been forgiven for weaker figures following a pretty extensive period of volatile consumer confidence made worse by the Budget, but it has once again bucked the trend by announcing sales ahead of expectations,’ said Palmer.
Nevertheless, she described the drop in sales at Next’s retail stores as ‘concerning’, and yet another ominous sign for the health of the UK high street.
‘Most worrying is Next’s belief now that UK growth is likely to slow. For a business with the scale and resources of Next, it will be more than able to navigate a stagnant UK economy, but in a scenario where customers continue to refrain from discretionary spending and prices continue to rise for businesses, the new year will be pretty uncomfortable for other operators.’
Palmer continued: ‘Sadly, if we do not see a significant change in fortunes for the sector, it is highly likely that we will see a surge in retailers announcing redundancies, closing stores and ultimately failing in 2025.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
