Shares in Next (NXT) rallied after the fashion retailer delivered forecast-beating FY26 profits. The FTSE 100 firm also flagged an ‘encouraging’ start to the new financial year.
Accordingly, Next raised its FY27 profit guidance to £1.21 billion. That implies solid year-on-year earnings growth of 4.5%.
However, the clothing colossus reiterated its forecast for growth to slow this year. It also warned the Iran conflict would likely impact costs, selling prices and consumer demand.
Consistent delivery
Led by Simon Wolfson, Next has a track record of under-promising and over-delivering. And the high street retailer has been on a hot streak in terms of raising its financial outlook.
Today, the retailer reported a 14.5% increase in FY26 pre-tax profits to £1.158 billion. That was £8 million higher than previous guidance. The beat reflected better than expected January full price sales and improved end-of-season sale clearance rates.
Despite the difficult consumer backdrop, full price sales rose 10.9% last year. International sales were up 35%, growing much faster than the 7% sales rise seen in the UK.
Next said its UK sales in the first eight weeks of FY27 were ‘encouraging’, with overseas revenue growth also strong ‘up to the point the conflict began in the Middle East’.
The group nudged up its FY27 taxable profits guidance to £1.210 billion pounds. It stuck to its previous forecast for full price sales growth to slow to 4.5%.
Rising cost burden
‘Looking forward, we have not yet reached the period of unusually strong UK trading we experienced last year,’ said Wolfson.
‘And, perhaps more importantly, instability in the Middle East – which represents around 6% of our total turnover – may continue to restrain growth in that region.
‘It is also likely to have knock-on effects on costs, selling prices and consumer demand in the rest of the business.’
Next has accounted for £15 million of additional costs likely to arise from the conflict, on the assumption disruption lasts for three months. But the company stressed these costs have been offset by savings elsewhere, so do not affect its FY27 guidance.
‘Beyond the next three months, if we see these costs persist, then we will begin to pass costs through as higher pricing,’ conceded Wolfson.
‘But for today that remains a contingency not a plan.’
Consumer confidence is being rocked by rising taxes and geopolitical uncertainties. In the retail sector, this means stock picking is key. Demand for discretionary items is likely to remain weak, but Next is guided by one of the best management teams in the business.
Sharesify is confident Next can navigate its way through the latest storm. The retailer also remains a cash flow monster.
Last year, it returned a bumper £839 million to shareholders through dividends, share buybacks and a B Share Scheme capital distribution.
B shares are a class of company stock with different rights to normal A shares, such as fewer votes or less rights to dividends, and are sometimes used by companies to return capital.
Read the press release here: https://www.nextplc.co.uk/investors
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