- Retailer inches towards £1 billion profit mark
- Pre-tax profit guidance increased by £15 million
- ‘Exceptional’ growth overseas
Clothing and homewares retailer Next (NXT) has raised its year-to-January-2025 profit guidance for the second time in two months.
In fact, the high street stalwart is now on the verge of joining the £1 billion pre-tax profit club, quite an achievement considering the difficult backdrop for retailers in the UK.
Shares in the Simon Wolfson-steered retailer rose 2.4% to £106 in early dealings as investors welcomed the news full price sales ‘materially exceeded’ expectations in the first six weeks of the second half, a 6.9% rise giving Next the confidence to raise its annual full price sales growth guidance from 3.4% to 4%.
OVERSEAS GAINS
For the first half to July 2024, Next’s revenue ticked up 14% to £2.86 billion and pre-tax profit improved 7.1% to £452 million as ‘exceptional’ growth overseas offset a weather-blighted domestic performance.
Despite poor weather and mixed consumer confidence, Next’s full price sales rose 4.4% to £2.36 billion during the first half.
While brick and mortar sales softened 2.1% in the half, online sales rose 7% and Total Platform sales jumped 25%.
As expected, Next’s UK business only grew by 1% as the retailer lapped last year’s exceptionally warm second quarter.
But Next fired-up investors by stressing it is entering a new phase of its development comprising retail stores, online and international growth plus a wider portfolio of brands and products.
ANOTHER GUIDANCE UPGRADE
Next is now guiding to full year 2025 pre-tax profit of £995 million, up from previous guidance of £980 million and implying 8.4% year-on-year growth.
In August, the FTSE 100 giant had increased its pre-tax profit guidance by £20 million from £960 million.
Next pleased income investors by upping the half-time dividend by 14% to 75p and now expects to generate surplus cash of £651 million in full year 2025. It plans to pay £259 million worth of ordinary dividends and spend £306 million on share buybacks, implying a 5.2% return to shareholders on the current market capitalisation.
Russ Mould, investment director at AJ Bell, said that in under-promising and over-delivering, ‘Next has helped drive its share price to new record highs with sales doing well - suggesting its mid-market customer base is feeling sufficiently confident to begin loosening the purse strings. The 4.4% increase in full price sales shows Next is not having to slash prices to get stock off the shelves.’
Mould added: ‘Next is also benefiting from the change in the retail landscape in recent years with many competitors either falling on hard times or disappearing altogether. It has also opportunistically taken stakes in brands such as FatFace and Reiss, which are helping to supplement sales.’
Julie Palmer, partner at Begbies Traynor (BEG:AIM), warned that as we head towards the Golden Quarter, ‘it remains to be seen whether Next’s momentum can continue.
‘Interest rate cuts might have begun this summer, but the newsflow emanating from the new government has hardly been positive and consumers could be reluctant to unload their wallets this Christmas if the mood music remains so downbeat.’
Palmer added: ‘That said, if you had to pick a retailer who you expect to end 2024 in a better place than the one in which it began, Next would be most people’s choice.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Tom Sieber) own shares in AJ Bell.
