- First quarter’s like-for-like sales come in higher than expected
- Management raises profit forecasts once more for year to January 2026
- Buyback on hold, however, thanks to strong share price performance
“Retailers usually bemoan the British weather, but the warm spring means that the latest trading update from Next brings yet another upgrade to earnings forecasts, the eleventh in the past three years,” says AJ Bell investment director Russ Mould.
“However, management is not getting carried away, given that summer is yet to start, and chief executive Lord Simon Wolfson is not assuming that sales continue to grow above expectations for the rest of the year. The share buyback is now also on hold, given the lofty share price, and this combination may explain why the stock is not pressing on to new all-time highs after the announcement.
“Next’s prior string of upgrade to profit estimates offered a valuable reminder that retailers can thrive, regardless of what the weather does, if they sell the right product at the right price point in the right format for the target customer base. Doing this correctly will improve stock turn and sell through, reduce the need to discount and in turn help profit margins and cash flow.
“Next seems to have the knack of getting this right, but it will gladly take some helpful seasonal weather as a bonus when it can. The ability of the firm’s chief merchandising officer to spot the next hot trends, and the skill of the buyers in sourcing the product in the right quantity, added to some sunshine, means that full-price sales rose 11.4% year-on-year in the first quarter, way ahead of management’s expectation of a 6.5% increase for the three-month period and a 6.0% advance for the whole financial year to the end of January 2026.
Source: Company accounts. Financial year to January.
“Next is not getting carried away, however, especially as whatever masquerades as the British summer is yet to start. The company is upgrading full-year profits guidance once more, but only by the £14 million accrued from the additional full-price sales in the first quarter in the view that the warm weather may have pulled forward business from later in the year.
“This does leave scope for further upgrades, if business continues to go well, and in this respect the company continues to manage expectations as shrewdly as it does its stock of merchandise.
Source: Company accounts.
Source: Company accounts.
Source: Company accounts.
“The company now expects to generate pre-tax income in the twelve months to January 2024 of £1,080 million, compared to £1,011 million in the year to January 2025. Note that this financial year has a fifty-third week and that will add an extra £20 million to profits, if all goes according to plan.
Source: Company accounts, Marketscreener, management guidance for 2026E. *2024 excludes capital gain on Reiss. Financial year to January.
“The increase in full-price sales will help Next in its quest to offset the incremental costs from wages, national insurance contributions and packaging taxes, which the firm currently quantifies at £73 million. The company expects to cover that figure with increases in full-price sales and also £71 million in costs savings that relate to electricity, increased efficiency across stores and warehouses and product sourcing.
“Stronger-than-expected profitability should help cash flow, and cash flow funds dividends and share buybacks, once all other bills have been met and investments made in the company’s competitive position.
“After paying out £258 million in dividends and running £326 million in share buybacks in the year to January 2025, Next initially expected to distribute £276 million in dividends and buy back a further £314 million in stock in the coming 12 months.
“However, the share price’s gallop to new all-time highs means that Lord Wolfson and his team have put the buyback on hold, as the maths of buying back stock is no longer so compelling. Such discipline compares favourably with buyback programmes at many other firms, which seem to run the schemes irrespective of whether the share price is low or high – and that is just the sort of cavalier approach that would impoverish a retail investor who nurtures their own portfolio or get a professional fund manager the sack owing to poor performance.
Source: LSEG Refinitiv data
“Next’s rigour means it has bought back just £81 million of stock so far in its 2026 financial year. Further profit upgrades could make the maths for more buybacks more compelling, but it will be interesting to see if any surplus cash is diverted to a higher-than-planned dividend if not.
“For now, management’s planned aggregate cash return of £590 million for the 2026 financial year equates to around 4% of the company’s current stock market capitalisation.
“More impressively still, total cash returns, via dividends and buybacks, now total £3.3 billion over the past decade, no mean sum when Next’s stock market capitalisation was £10 billion in January 2015.”
Source: Company accounts, Marketscreener, management guidance for 2026E. Financial year to January.
