British multinational clothing and footwear retailer Next was up by more than 3% on Tuesday after it raised guidance following a strong festive period, with pre-tax profits expected to be more than £1bn.
Next’s gain came against the FTSE 100 trading in the red.
The firm reported a better-than-expected 5.7% rise in underlying full-price sales for its fourth quarter so far, and upped its full-year pre-tax profit outlook once again, pencilling in a 10% jump to £1.010 billion.
This compares with previous guidance for a 9.5% rise to £1.005 billion.
To date, only a small number of UK retailers have exceeded £1bn – an elite class of Tesco, Marks and Spencer, and Kingfisher.
Richard Hunter, head of markets at interactive investor, said, “Next has delivered another classic update, following a stronger than expected Christmas showing.”
In typical fashion, the group continues to exceed previous estimates, up its profit guidance for the year yet again while providing a cautious outlook for the year to come – a positive cocktail that investors have almost come to expect.
For the year ending January 2026, Next has forecast full-price sales growth at 3.5% and profit before tax at 3.6%.
The group has also guided for pre-tax earnings per share growth of 6.7%, with the latter largely the result of its share buyback programme.
What’s behind the FTSE 100 retailer’s optimism?
Next’s strong performance was driven by the acceleration of its online business in the nine weeks to 28 December, both in the UK and overseas.
Total online UK sales were 6.1% higher, compared with a 2.1% decline for the core high street estate.
The company said that in the run-up to Christmas, online sales growth increased “at the expense” of growth in retail stores.
In contrast, overseas sales growth “unexpectedly” accelerated in the run-up to the holiday period.
Wealth Club manager Charlie Huggins said, “The overseas offering is one which holds up some interesting prospects. The group believes that international tastes in clothing are beginning to converge, not least of which is due to the increasing visual power, appeal and presence not just of the internet, but also the rise of streaming services which are now increasingly used by younger audiences.”
NEXT warns of increased costs and slow UK growth in 2025
Along with lifting profit guidance for the year till January 2025, Next has also warned of slowing sales growth in 2025, and said it would need to raise prices due to the financial impact of recent Budget measures.
“We intend to offset around £13 million of wage costs through raising prices. This will require an increase of around 1% in selling prices on like-for-like garments over and above any factory gate price increases,” the retailer said.
Fortunately, we are seeing 0% inflation in factory gate prices. So although we are increasing our bought-in gross margins, we still expect our prices to rise by less than the Bank of England’s target for inflation of 2%.”
The Autumn Budget has significantly increased payroll costs for most UK retailers, forcing them to pay higher taxes on employee wages.
The high street giant revealed it faces a £67 million increase in wage costs for the year ending January 2026 following the Labour Government’s announcement to raise employer national insurance contributions and the minimum wage starting April.
Next cautioned that these tax hikes, combined with their ripple effects on pricing and employment, could lead to a broader economic slowdown in the UK.
Despite these challenges, Next’s robust profit margins, overseas growth, and efficiency efforts position it better than many peers to weather the storm.
Higgins said,
Calendar year 2025 is likely to be a bloodbath for the UK retail sector. The Autumn Budget means retailers will face a significant increase in employee costs and many will not be able to offset this. Next stands apart for its ability to do so, with its high margins, strong overseas growth and efficiency initiatives all helping it to preserve profitability.
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