Shares in Next (LON:NXT) rallied to an all-time high after the clothing retailer raised FY27 profit guidance again following a stronger-than-expected Q2.
UK heatwaves and a Middle East sales recovery helped to drive the ‘beat’. However, Next maintained its H2 sales forecast with tougher overseas comparatives to come.
Q2 sales beat
For the 13 weeks to 1 August, full price sales were up 9.2% year-on-year. That was ‘materially ahead’ of the 4% growth Next had previously forecast.
The FTSE 100 retailer attributed this over-performance to hot UK weather. Another driver was the release of pent-up demand in the Middle East and Northern Europe after a weaker Q1 in both territories.
‘We were able to spend much more on profitable marketing than we had anticipated,’ added Next.
Success overseas masked a more subdued Q2 performance at home. While international online sales rocketed 36.9% higher, the rate of growth on home turf was far more modest. Total UK sales rose 2.8% as third party online sales growth offset a decline in Next-brand online sales and a 0.3% drop in store revenues.
Guidance hiked again
For FY27, Next increased its pre-tax profit guidance by £25 million to £1.243 billion. That implies year-on-year profit growth of 7.3%.
The upgrade reflected the Q2 sales beat as well as a better-than-expected performance from the retailer’s equity investments.
Earnings per share guidance was increased from 792.9p to 812.9p on the assumption Next completes £524 million of share buybacks this year. That amount of buybacks would be £14 million higher than previous guidance.
Led by CEO Simon Wolfson, the retail star turn’s winning streak of earnings upgrades continues. And Sharesify remains confident Next can navigate its way through prevailing retail sector storms.
Guided by one of the best management teams in the business, Next continues to return capital to shareholders through progressive dividends and earnings-enhancing buybacks. Yet we would resist chasing the shares at these lofty levels.
Keep in mind Next’s international sales growth in H2 is expected to moderate, balmy UK temperatures pulled sales forward and the consumer remains under pressure.
As one commentator cautioned: ‘When a business is branded as a star performer, that can mean the bar is raised. Next has cleared this bar, but it’s important to note it has done so after being buoyed by international strength and considerable tailwinds that may not repeat with the same level of intensity.’
Read the press release here: https://www.nextplc.co.uk/investors
