Next shares are the gift that keeps on giving

In investment terms, Next (LSE:NXT) is the gift that keeps on giving.

It has delivered another classic update, following a stronger-than-expected Christmas showing and, in typical fashion, has exceeded previous estimates, upped its profit guidance for this year and next while providing a cautious outlook for the year to come – a positive cocktail which investors have almost come to expect.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Full price sales in the last nine weeks of its financial year, comprising the “golden quarter” and the festive period, were up by 10.6% against previous guidance of a 7% increase. This was driven by growth in the UK of 5.9% (previously estimated at 4.1%) and internationally of 38.3% (24.3%), the latter reaping the benefit of improved stock availability and more profitable marketing expenditure.

In turn, guidance for this full year has been raised, where Next expects growth of 10.7% in full price sales and yet another spike to the estimated pre-tax profit number to £1.15 billion, a £15 million increase to previous guidance, which would represent a 13.7% increase on the previous year.

The momentum is then expected to spill over to next year, although at slightly lower levels, as Next’s famously cautious outlook approach comes into play. It cites a number of headwinds, such as tough comparatives (with the first half this year having been boosted by particularly warm summer weather and the cyber disruption at Marks & Spencer providing additional business), UK employment remaining under strain and an unlikely repeat of the profitable marketing expenditure overseas.

Even so, full price sales are likely to grow by 4.5% (comprising an increase of 1.6% in the UK and 16.5% internationally), leading to a further rise in pre-tax profit to £1.2 billion. At the same time, and assuming no further acquisitions in the period, some £768 million will be available for shareholder distributions.

• Investment outlook: expert opinion, analysis and ideas
• 10 hottest ISA shares, funds and trusts: week ended 2 January 2026
• Stockwatch: an outlook for sectors and stocks in 2026

In the meantime, the group has returned to a rarely used but previously common approach on its special dividend with the issue of “B” shares. The move can be more tax efficient and in any event effectively takes the projected dividend yield to 4.5% including specials. For the time being, the share buyback programme remains on the shelf since the share price is well above the group’s own target (currently £128 per share) of triggering such buybacks.

In all, the update once more underlines the group’s unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities, such as the potentially exciting opportunities in the international business. Next continues to believe 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.

The group retains a very clear and simple appreciation of its business, with product (the brand) and platform (enabling third-party sales) being its current drivers. Indeed, over recent times the group has leaned towards full-price sales at the expense of discounts, and the strategy has paid off with the company previously noting that there is an increasing proportion of customers who are buying fewer, but more expensive items, which potentially brings new opportunities for Next slightly higher up the price chain.

• eyeQ: equity investors, don’t ignore alarm bells for one market
• Interest rates, inflation and the economy in 2026
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

It should therefore come as little surprise that the share price has awoken to the singular strength of this slick and well-regarded company. Even prior to today’s warm reaction to the update, a rise of 43% over the last year compares to a gain of 21.3% for the wider FTSE100, helping to lift the three-year performance to growth of 109%, which is a considerable achievement given the traditional restraints which retail stocks face.

Such gains may well put Next on a premium to its longer-term valuation, but given the group’s ability to deliver time and again, perhaps the punchy price is justified. The market consensus of the shares as a strong hold, which has been in place for some time, has been shown to have missed the boat on several occasions, where the naysayers who have doubted the stock’s trajectory may still continue to do so at their peril.