NEXT H1 Earnings Call Highlights

Key Points

• NEXT delivered a strong first half: Total sales rose 9%, full-price sales increased 7.7% versus 4% expected, and profit climbed 10.5%. The company plans to raise its interim dividend by 12.6% to 98 pence per share.
• International and owned-brand growth led performance: Overseas full-price sales grew 24%, while owned brands and licences rose 33.5% in the U.K. and 82% internationally. Retail remained weaker, with full-price retail sales down 1.7%.
• NEXT became more cautious on the U.K. outlook: It reduced second-half U.K. sales expectations due to anticipated pressure from fuel and other inflation, but maintained full-year guidance for 6.7% sales growth and approximately £1.255 billion in profit before tax. Around £500 million may be available for additional shareholder distributions after capital expenditure and ordinary dividends.

NEXT LON: NXT reported higher first-half sales and profit, led by international online growth and stronger contributions from its owned brands, while Chief Executive Simon Wolfson said the retailer had become more cautious on the U.K. consumer outlook for the second half.

Total group sales increased 9% in the first half, while full-price sales rose 7.7%, exceeding the company’s prior expectation for 4% growth. Profit increased 10.5%, and profit margins improved by 0.3 percentage points. NEXT said it planned to raise its interim dividend 12.6% to 98 pence per share, in line with earnings per share growth.

Wolfson said the difference between total and full-price sales growth was driven by a more normal level of end-of-season markdown stock compared with the prior year, when the company had a relatively small sale after outperforming expectations.

International growth outpaces U.K. operations

International full-price sales climbed 24%, with total overseas sales up 26%. Europe was the largest contributor, generating nearly £100 million of the £133 million increase in overseas full-price sales. European sales rose 28%, helped by a step-up in sales through Zalando following the ZEOS integration.

Middle East sales rose 14%, though first-quarter trade was affected by regional disruption. Wolfson said there was also pent-up demand in the second quarter, meaning the 37% second-quarter growth rate should not be viewed as a normalized run rate.

The company also highlighted growth in the United States for the first time, though Wolfson stressed that the business remained small. He said NEXT had found more productive and profitable marketing channels in the market, without making material changes to its product offering or pricing. U.S. margins were above 10%, but lower than in other international markets because merchandise is currently shipped from the U.K.

International profit margin declined 0.4 percentage points in the first half, largely because Middle East conflict-related shipping surcharges were not fully offset by price increases during the period. NEXT expects the price changes to cover those surcharges in the second half, leaving the impact cost-neutral for the full year. It forecast an international margin of about 15.1%, flat year over year.

Owned brands and marketing support online growth

U.K. online sales rose 8%, with full-price sales up 7.4%. Sales of NEXT’s wholly owned brands and licences, which the company refers to as WOBL, increased 33.5% in the U.K. and 82% internationally. Third-party branded sales also grew, while the core NEXT brand’s U.K. online sales increased 2.1%.

Wolfson said more than two-thirds of group growth in the first half came from non-NEXT brands, primarily brands owned by NEXT. He said the company does not believe the slower U.K. growth of the NEXT brand indicates a fundamental weakness, citing competition from the broader brand assortment on its own platform and comparisons with a prior-year benefit from retail-sector disruption.

NEXT continued to increase marketing spending where campaigns meet its return thresholds. Wolfson said the company requires at least £1.50 of incremental profit before fixed overheads for every £1 spent on marketing. International marketing expenditure rose sharply, supported by improved media-targeting technology, website and delivery-service improvements, lower European media costs, and opportunities in countries where NEXT had previously undertaken little advertising.

The company said its new Pay in 3 credit product was contributing to faster growth in credit sales. The product allows customers to pay in three interest-free installments if payments are made on time, while interest applies to unpaid balances. Wolfson said the product should cause receivables to grow more slowly than credit sales and could potentially reduce bad debt, although he said that had yet to be proven.

Retail remains weaker, but new stores exceed expectations

Retail sales declined 0.4%, while full-price retail sales fell 1.7%. Like-for-like sales were down 3.3%, better than the company’s expectation of a decline of about 5%.

NEXT expects full-year retail sales to decline 0.9% and retail margins to be around 10.2%. Wolfson acknowledged that the sales assumption could prove optimistic, although he said the first-quarter comparison was affected by unusually warm weather in the previous year.

New retail space is expected to increase 1.3% for the full year through eight store openings, six of which have already opened. Based on opened locations and current forecasts, NEXT expects the investments to generate an internal rate of return of about 30%.

Wolfson said the new Bluewater store was delivering sales ahead of expectations and had materially better economics than the company’s earlier Thurrock concept store. He attributed improved new-store returns partly to more realistic sales targets and tighter management of shop-fitting costs.

Guidance, capital returns and technology investment

NEXT reduced its second-half U.K. sales expectations, citing anticipated pressure on consumers from fuel and other inflation. Wolfson said the company had seen some softer trading weeks but characterized the guidance change mainly as an anticipation of more difficult conditions rather than a response to a disclosed current trading trend.

For the full year, the company now expects total sales growth of 6.7% and profit before tax of about £1.255 billion, up 8.4%. It expects post-tax earnings per share to increase by around 10% and total shareholder return, including dividends, to be about 12.6%.

• First-half share buybacks totaled £355 million.
• NEXT expects roughly £500 million to be available for shareholder distributions during the full year after capital expenditure and ordinary dividends.
• The remaining distribution could take the form of a special dividend, further buybacks or another capital return, Wolfson said.
• The company expects year-end debt of about £815 million as it targets leverage of 0.63 times.

The company also discussed productivity initiatives in warehousing and technology. Wolfson said investments in the Elmswell 3 warehouse were beginning to reduce warehousing costs as a percentage of sales, although delivery performance still needs improvement when operations are running at high volumes.

In technology, NEXT is piloting artificial-intelligence agents across its software-development process. Wolfson said the company is targeting a 30% productivity improvement in its technology function by February 2028, while emphasizing that the primary opportunity is faster delivery of projects rather than simply reducing headcount or costs.

About NEXT (LON:NXT)

Founded as a tailoring business in Leeds in 1864 by Joseph Hepworth and Son, today, the company offers clothing, footwear, accessories, beauty and home products to our UK and International customers. NEXT has over 500 stores in the United Kingdom and Eire, and over 180 franchise branches across Europe, Asia and the Middle East. The company's main divisions are NEXT Online, NEXT Retail and NEXT Finance. We also launched Total Platform, an online, distribution, tech and logistics solution, in 2020.

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