Next sign and logo
Next’s pre-tax profits ticked up 4.8% to £420 million in the half to July / Image source: Adobe
  • Sales and earnings guidance upgraded
  • Inflationary pressures easing
  • Wolfson concedes Next was ‘overly cautious’

Retail bellwether Next (NXT) has upgraded its full-year profit guidance for the third time in four months following a better-than-expected first half sales performance delivered in the face of an ongoing cost-of-living crisis.

Shares in the FTSE 100 retailer rose 2.5% to £72.86 on the positive news, taking year-to-date gains to 22%.

For the year to January 2024, the clothing and homewares purveyor is now forecasting full-price sales growth of 2.6%, up from previous guidance of 1.8%, and has bumped up its pre-tax profit estimate by £30 million to £875 million, implying 0.5% year-on-year growth.

That’s up from earlier guidance of £845 million and £795 million at the start of the year, and comfortably ahead of the £851 million consensus estimate reflecting Next’s higher sales forecast as well as additional cost savings from lower freight, warehouse and distribution costs.

WAGES AND WEATHER HELPED

Next’s pre-tax profits ticked up 4.8% to £420 million in the half to July 2023 on full-price sales ahead by 3.2%, exceeding the retailer’s own forecast for a 3% decline and supported by a robust online performance and more modest growth from brick and mortar stores, as well as wages and weather.

Chief executive Simon Wolfson explained Next had been ‘overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line.’

He continued: ‘We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time (a factor we need to bear in mind when it comes to our forecast for next year).’

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Gazing ahead to the year to January 2025, Next said it is likely inflationary pressures on selling prices and operating costs would continue to ease.

The retailer, which has acquired Cath Kidson, Made.com and Joules from the administrators and recently boosted its stake in Reiss from 51% to 72%, expects to generate £568 million in surplus cash this year, of which it plans to spend £467 million on dividends and buybacks in the current year.

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, commented: ‘If you have an idea of the challenges on the horizon, it’s possible to put your business in the right shape to survive. That seems to be Next’s approach, as it has benefited from focusing on key cogs in the business to navigate the difficult market environment.

‘Broadening its product offering, making sure the online service is as efficient as possible and keeping a sharp eye on costs have all been key focal points and Next has come out on top. These factors and steady demand from customers have enabled it to raise profit expectations.’

Mould continued: ‘There are certain items which people continue to need in good and bad times and offering good quality products via a pleasant shopping experience – tidy stores or an easy-to-use website with swift delivery – means Next remains at forefront of people’s minds when they are thinking about where to shop.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

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Issue Date: 21 Sep 2023