Clothing and homewares colossus Next (NXT) has once again raised its pre-tax profit guidance for the year ending 27 January 2024, after sales around the key Christmas period proved better than expected.

As a result, Lord Wolfson-led Next has bumped up its earnings guidance by £20 million to £905 million against its most recent forecast of £885 million, and from its original target of £795 million set at the start of this financial year, representing a 4% year-on-year increase.

Shares in Next rose 5% to £84.82, topping the FTSE 100 leader board and testing all-time highs, as investors welcomed the retail star turn’s latest positive update.

STRONG FESTIVE SHOWING

Of the £20 million guidance uplift, £17 million came from the better-than-expected sales delivered year-to date and £3 million from Next’s upgraded forecast for full price sales in January.

In the nine weeks to 30 December 2023, full price sales ticked up 5.7% year-on-year, some £38 million ahead of Next’s previous guidance for a 2% rise, suggesting hard-pressed shoppers were happy to pay up for what they perceived to be good quality ‘must have’ items this Christmas.

Next’s online revenue rose 9.1% thanks to improved stock availability and excellent operational execution.

‘Stock has been well controlled,’ explained Next. ‘We went into the end-of-season sale with 12% less surplus stock than last year. We expect clearance rates over the life of the sale to be broadly in line with last year.’

The retail master of setting earnings expectations, Next now expects to deliver a 4% rise in full price sales to £4.78 billion for the year to January 2024, a bump up from its November outlook of £4.74 billion.

For the year to January 2025, Next expects to deliver full price ‘continuous business’ sales growth of 2.5% and a 5% rise in pre-tax profit to £960 million.

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RETAIL CASH MACHINE

Next, which routinely rewards shareholders with ordinary dividends and buybacks, also stressed that cash generation ‘remains strong in the year’.

The best-in-class retail operator expects to generate around £100 million more surplus cash than the previous guidance set in September, which means net debt (excluding lease liabilities) is to close the year at around £700 million, down from £797 million last year.

Despite the economic uncertainties facing the retail sector in 2024, Next pointed to a more benign outlook for the consumer than there has been for a while flagging better wage growth and zero sales price inflation.

However, the company is also alert to the risks from a weakening employment market, higher mortgage rates, and difficulties in the Red Sea which may affect its supply chain.

‘Difficulties with access to the Suez Canal, if they continue, are likely to cause some delays to stock deliveries in the early part of the year,’ warned Next.

EXPERT VIEWS

Clive Black, respected retail watcher at Shore Capital, commented: ‘Next is widely regarded as a well-managed business, one that also has a better grasp than most of overall retail dynamics in the UK. The further increase in full year 2024 guidance is welcome and the full year 2025 outlook broadly reassuring, expectations that should at least support its equity rating, albeit it has a deserved premium to the UK general retail scene.’

Wealth Club’s Charlie Huggins said the future for Next ‘looks bright’ and is reflected in the group’s guidance to grow sales and profits again in the year ahead. ‘Next’s core proposition is clearly resonating with the UK consumer and is being augmented by intelligent acquisitions of brands like Fat Face,’ said Huggins.

‘With inflation falling and wages rising, the economic picture also looks a lot less bleak than at the start of last year.’

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