Next PLC (LSE:NXT) gained confidence that it will top £1 billion of profit for the first time this year, as the clothing retailer raised its outlook following unexpectedly strong online and overseas sales over the festive period.
For the full year the FTSE 100-listed chain now expects group profit before tax to increase 10% on last year, up from previous guidance for 9.5% growth.
Full-price sales in the nine weeks to 28 December rose 6.0%, or 5.74% if the effect of the end-of-season sale is excluded.
This is stronger than previous guidance for the Christmas period of 3.5% growth.
Overall UK growth was in line with the performance seen earlier in the year, but Next noted that online sales growth "increased at the expense of growth in our retail stores", with retail sales falling by 2.1% and UK online sales up 6.1%.
Sales growth overseas accelerated in the run up to the holiday period, which the retailer said it had not expected.
Next year's outlook
For the next year to April 2026, Next also said it had "one important message": that it believes the group can deliver sales growth and can grow profits in line with sales, despite slow UK growth and higher wage costs.
The company said it believes that the "unusually high" £67 million increase in wage costs, driven by a combination of general wage inflation, the recent increase in the minimum wage and changes to National Insurance, can be offset by price rises and cost cutting.
"We believe that UK growth is likely to slow, as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy."
It expects to offset around £13 million of wage costs through raising prices, which will require an increase of around 1% in selling prices, and operational savings of around £23 million from efficiencies in warehouses, distribution networks and stores.
Overseas, growth is expected to moderate from the 24% achieved so far this year to 14% in the year ahead.
In the current financial year to 5 April, overseas sales benefited from an +85% step change in marketing expenditure, funded by some price increases.
"We do not believe we can profitably increase our overseas marketing expenditure by the same percentage next year, and expect the growth to be closer to +20%."
** Update: adds details **