Next raises guidance after strong festive sales: full City reaction

The retail giant, which runs some 900 stores, reported a 5.9 per cent hike in UK full-price sales for the nine weeks to December 27, while overseas sales surged by 38.3 per cent. It now expects pre-tax profits to rise by 13.7 per cent to £1.15 billion for the year to the end of January on full-price sales up 10.7 per cent.

The group had previously guided for profits to increase by 12.2 per cent to £1.14bn and sales to rise 9.7 per cent.

Despite the better-than-anticipated festive figures, Next forecast a slowdown in growth for the following 2026-27 financial year as it sees jobs market woes weighing on consumer spending, while it is also set to come up against tough trading comparatives and more moderate overseas sales.

The FTSE 100 firm, which is led by chief executive Lord Simon Wolfson, is predicting pre-tax profits for that period will rise by 4.5 per cent to £1.2bn sales up 4.5 per cent at £5.9bn.

On recent Christmas trading, Next told investors: “Growth in the UK slowed but not by as much as we expected. We believe that sales benefited from higher stock levels than last year, when supplier deliveries were delayed by disruption in Bangladesh and global freight networks.”

The group had previously forecast UK sales growth to ease back to 4.1 per cent in the Christmas period, but saw its performance beat expectations as online growth lifted to 9.1 per cent, offsetting a more muted 1.4 per cent sales rise across its stores estate.

The company - widely seen as a bellwether for the UK high street - has now increased its profit guidance by five times in its past financial year as trading has consistently smashed forecasts and after it benefitted from disruption at close rival Marks & Spencer following its crippling cyber attack in the spring.

However, Next remains cautious over the outlook and warned once again over the impact of rising unemployment, predicting that UK online and store sales growth will pull back sharply to 1.6 per cent in 2026-27.

It added: “Continuing pressures on UK employment are likely to filter through into the consumer economy as the year progresses.”

The firm is also expecting overseas sales to grow by a more moderate 16.5 per cent as it reins in recent high spending on marketing.

City reaction to the festive update was largely positive, with Richard Hunter, head of markets at the Aberdeen-owned investment platform Interactive Investor, describing Next as “the gift that keeps on giving”.

He said: “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, while providing a cautious outlook for the year to come - a positive cocktail which investors have almost come to expect.

“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,” he added. “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.”

Chris Beauchamp, chief market analyst at IG, noted: “Next has provided its usual mix of good news and pessimism - yet more strong sales but accompanied by warnings of a slowing UK economy.

“Still, it appears to be just the tonic for a share price that has lacked direction since October - having acquired plenty of other brands it has now become one of the only games in town for both shoppers and those looking to invest in the UK retail sector. That might make it a target for disruption, but there’s little sign of any real rival emerging just yet.”

Adam Vettese, market analyst for investment platform eToro, said: “Next has delivered another resilient Christmas performance, underscoring its position as one of the UK high street’s strongest operators.

“Increased full-price sales and disciplined stock management continue to support solid cash generation, and management’s controlled guidance reinforces confidence in the group’s operational grip.

“Much of this quality story is already reflected in the share price after a strong run over the past year, which leaves less room for error if consumer demand softens. Expectations going into the statement were high following previous guidance upgrades, so the scope for further re-rating now increasingly depends on additional earnings upgrades.

“That being said, management are targeting further milestones beyond the £1bn [profit] mark achieved last year for the first time and given recent history it’s hard to back against the company meeting those targets,” he added.

Next is one of the first major names to update investors on its trading fortunes in the run-up to Christmas with a flurry of further announcements from household names due in the coming days. Discount supermarket chains Aldi and Lidl have already reported strong performances over the festive period, while investors are eagerly awaiting an update from Marks & Spencer.