ii view: Next cements position as core retail sector holding

End of year trading update for the nine weeks to 27 December

• Full price sales up 10.6% compared to a year ago
• UK sales up 5.9%
• International sales up 38.3%

Guidance

• Now expects full-year full price sales to rise by 10.7%, up from a previous 9.7%
• Now expects annual pre-tax profit of £1.15 billion, up £15 million from the previous estimate
• Special dividend of £3.60 per share to be paid via the issue of “B” shares
• Full price sales for the 2026 year ahead forecast to rise by 4.5%
• Pre-tax profit for 2026 financial year forecast to rise by 4.5% to around £1.2 billion

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products, selling both its own and other third-party branded goods.

The Next Online business, including both UK and overseas, accounted for 55% of overall revenues in the last financial year to 31 January 2025.

The Next Retail, or store business, generated 29% of sales. The balance came from Consumer Credit, or Finance business at around 5%, and the relatively new ‘Total Platform and Investment business, where Next invests in and outsources the use of its online operations to others, at around 11%.

For a round-up of this latest trading update announced on 6 January, please click here.

ii view:

Headquartered in Leicester and a constituent of the FTSE 100 index, Next employs over 30,000 people. Competitors include Marks & Spencer Group (LSE:MKS), Associated British Foods (LSE:ABF)-owned Primark, and even clothes and homewares sold by supermarkets Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY). Investments made in and users of its Total Platform business include Reiss, Fat Face, Joules and Cath Kidston.

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For investors, management outlook comments flagged tough comparatives, particularly over the first half, potentially rising UK unemployment, and the likelihood of less aggressive marketing expenditure on international website sales. The importance of the weather on customer demand can never be forgotten. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while the eventual succession of CEO Lord Wolfson deserves thought given his importance to the retailer.

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More favourably, the retailer’s broad strategic push includes a move to become a global brand and retailer, developing new brands, as well as growing the Investment and Total Platform business. The retailer’s investment in stores, technology and warehouses is ongoing. A high focus on costs persists, while shareholder returns, currently focused on dividends as opposed to share buybacks, leave the shares on a forward dividend yield of around 4%.

On balance, and despite ongoing risks, this well-managed UK and overseas retailer continues to justify its place in many diversified investor portfolios.

Positives:

• Product and channel diversity
• Majority of sales and profits generated online

Negatives:

• Uncertain economic outlook
• Chief executive considered key in prospects

The average rating of stock market analysts:

Strong hold