Next beats guidance again as Zalando link pays off, but growth set to slow

Next delivered a Christmas trading statement on Tuesday and, as is usual with this company, there was a lot of detail to digest. But the headline news was that the company once again beat its guidance.

In the nine weeks to 27 December, full-price sales were up 10.6% on the year, which compares to its guidance for the quarter of +7%. UK sales were up 5.9% and international sales powered ahead by 38.3%.

Full-price sales include all items sold in its retail stores, its webstore (including third-party brands), and finance interest income. They exclude sale events, clearance, Total Platform commission and subsidiaries’ sales. 

This “over-achievement, along with additional sales forecast in January” adds £51 million to the full-price sales it had been expecting and it’s increasing guidance for full-year profit before tax in the year that ends this month by £15 million to £1.15 billion. Profit before tax is now forecast to be up 13.7%.

The company is clearly upbeat but it tends to be cautious with its forecasts and added that for the year ahead (ending January 2027) it now expects full-price sales growth of 4.5%, total group sales growth of 4.2% (including markdowns), and group profit before tax to be £1.202 billion, also up 4.5%.

Deep dive

Looking in more detail at that outperformance in the latest quarter, the company said full-price sales for the Next brand online in the UK rose 8.8% in the nine weeks to 27 December, an acceleration compared to the 5.8% rise in the first nine months and 6.5% in the 48 weeks to 27 December.

On the same basis, UK Online Label sales rose 9.5%, below the nine months’ 12.7% and the 48 weeks’ 11.9%. That all led to the total UK online rise of 9.1% in Q4 to date, beating the nine months’ 8.7% and 48 weeks’ 8.8%.

For retail stores, those three figures were 1.4%, 4.3% and 3.5% perhaps providing further proof that consumers tend to shift their interest online during the festive period and away from physical stores. 

Adding up the total UK sales, we arrive at the aforementioned 5.9% for Q4 to date, 6.8% for the nine months and 6.6% for the 48 weeks, so Q4 clearly lagged earlier in the year for the UK.

As mentioned though, the international online performance was hugely impressive and accelerated during the latest quarter as the 38.3% rise was ahead of the 31.5% for the nine months and 33% for the 48 weeks.

In total, full-price product sales across the business rose 11.1% in Q4, which was just below the 11.5% on the nine months and 11.4% of the year to date. 

So what are we to make of the figures? Next had earlier said the year had benefited from the problems faced by rival M&S after its cyberattack took its webstore offline for some time.

It’s clear that growth in the UK slowed since M&S got back on track, “but not by as much as we expected,” Next said.  UK growth was 5.9%, compared to its previous guidance of 4.1%, helped by higher stock levels than last year, when supplier deliveries were delayed by disruption in Bangladesh and global freight networks.

The surge internationally was much better than its guidance of 24.3%. This overperformance was driven by two factors. It was able to increase profitable marketing expenditure by more than anticipated. And sales through its main European aggregator, Zalando, were better than anticipated following its transition to the German firm’s ZEOS platform in August. “This change improved stock availability by allowing the same stock-holding to serve both the Zalando and Next websites across Europe,” it said.

Additionally, the amount of stock in its end-of-season sale was higher than it previously anticipated and up 5% on last year. But the adverse effect of more sale stock was offset by better than expected clearance rates. The net effect was to add £30 million to guidance for total group sales, although as this was stock sold at a discount, it was “profit neutral”.

Looking ahead

Expanding on the guidance for the full 2025/26 year, total group sales should rise 10.3% rather than the 8.7% it had previously expected. And the predicted 13.7% increase in profit before tax mentioned above should beat the 12.2% rise that it previously expected.

Looking in more detail at the guidance given for the 2026/27 financial year, the 4.5% increase expected in full-price sales would lag the 10.7% seen so far in the current year by quite a wide margin. That’s because there were particularly favourable circumstances in the current year, including the aforementioned M&S problems and ‘the right’ weather conditions in the summer.

As well as this, the company said that there will continue to be pressure on UK employment during the year, impacting economic activity. Growth from its overseas direct websites is also likely to moderate from the exceptional levels achieved this year.