Retailer Next led the FTSE 100 lower on Thursday, as it warned tough economic conditions in the UK would substantially dampen local sales during the second half.
At £112.80 per share, Next’s share price was last 6% lower.
In its first-half trading update, the clothing and homeware retailer said total revenues rose to £3.2 billion in the six months to July, up 10.3% year on year. Sales of full-price items rose 10.9% from a year earlier.
This swept pre-tax profits 13.8% higher to £515 million.
Favorable Factors
In the UK, total online sales were up 11.1% year on year, at £1.3 billion. Store-generated sales rose a more modest 3.7% to £899 million. Next makes around 80% of group turnover from its home territory.
Next said that its “good” first half was “somewhat flattered by disruption at a major competitor,” referencing a cyber attack that downed Marks & Spencer’s online operations in the second quarter.
It added that favourable weather during the first half had artificially boosted top-line performance.
Sales of the company’s Next brand were especially strong overseas, it said. These rose 20% from the same 2024 period.
Corresponding turnover rose a more modest 6% in its core UK market, with online and in-store sales increasing 7% and 5% respectively.
UK Operations Under Pressure
Troublingly, Next predicted that full-price UK sales in the final six months of the year would slow sharply. Growth in its core market is predicted to cool to 1.9% in the second half from 7.6% in the prior six months.
Full-price sales from its internet operations are tipped to rise 3.6% year on year. Store-sourced sales, meanwhile, are expected to decline 0.6%.
Corresponding sales increased 9.2% and 5.4% respectively in the first half.
The retailer predicted “anaemic” economic growth looking ahead, adding that “the medium to long-term outlook for the UK economy does not look favorable.”
Next cited “declining job opportunities, new regulation that erodes competitiveness, government spending commitments that are beyond its means, and a rising tax burden” as headwinds in its single largest market.
Guidance Maintained
Despite pressures in the UK, the retailer claimed it is in “a good place, with multiple opportunities for growth, both in the UK and overseas.”
Next said total full-price sales are tipped to rise 4.5% in the second half and 7.5% over the full year, in line with prior guidance. Revenues for the 12 months are forecast at £5.4 billion.
Full-year pre-tax profit estimates were also kept unchanged, at £1.1 billion. This represents predicted annual growth of 9.3%.
Online Operations Impress
Dan Lane, analyst at Robinhood commented that “Next could easily have been a real casualty of the digital age but, again, has shown its ability to not only stay relevant but prosper, thanks to its ability to adapt and benefit strategically from online retail.”
He added that “while the fast fashion brands have blazed and faded, Next has nurtured its brand portfolio, online platform and customer base steadily in a real tortoise and hare story.”
However, Lane said that “UK sales are still important though and predicting a drop in the second half is a rare negative today. It means bolstering ex-UK operations and international awareness is key now.”