NEXT (LON:NXT) outlined broad-based growth for the year ended 2026 and maintained its outlook for the year ahead, while warning that disruption tied to the Middle East conflict has added cost volatility and could pressure pricing if it persists.
In opening remarks, the chairman said long-serving directors Jane Shields and Jonathan Bewes will step down from the board in May. Shields has worked at Next for more than 40 years and has been a board director since 2013. Bewes has served for 9.5 years, including as senior independent director and chair of the audit committee. The company said it will add two new directors, Annette Court (joining March 1) and Jeni Mundy (joining April 1), both standing for election at the May AGM.
Guidance held as Middle East disruption adds costs
Wolfson said the Middle East represents about 6% of total sales. During the first week of conflict, Next “lost virtually all the sales” as operations stopped, but the company is now serving all territories, with some on longer lead times. Next has a regional hub and is shipping replenishment stock at higher cost. The company quantified the conflict-related cost impact at GBP 15 million over three months, assuming current surcharges, disruption and oil prices persist for that period. The cost breakdown included:
- GBP 8 million outbound costs from the U.K. to overseas customers (including GBP 5 million tied to the Middle East and the remainder from air-freight surcharges elsewhere)
- GBP 4 million inbound costs, mainly container-rate surcharges linked to fuel prices
- GBP 3 million expected incremental U.K. energy costs
Wolfson stressed the figures are volatile and reflect “rolling forward the costs we have today.” He said the company has already identified offsets of about GBP 8 million to GBP 9 million from margin gains and reduced revenue expenditure, including a GBP 6 million reduction in the systems budget versus January. If disruption persists, Next may pass on higher costs, particularly in affected regions, and potentially in the U.K., which Wolfson said could imply U.K. price increases of 1% to 2% around June or July. He also highlighted a longer-dated risk of higher costs of goods—particularly for energy-intensive inputs such as polyester—potentially emerging around October or November if the conflict continues.
Results: sales and profit rose, shareholder returns continued
On a 52-week, non-consolidated basis, Next reported total group sales up 10.8% and full-price Next sales up 10.9%. Retail store sales rose 3.5%, which Wolfson said was flattered by early summer weather and disruption at a major competitor. Profit rose 13.9%, which management attributed largely to leverage over fixed overheads and margin gains from improved clearance of stock through online operations. Profit before tax increased 14.5%.
Wolfson said interest expense fell because Next did not buy back shares during the year, and interest on accumulated cash totaled about GBP 8 million, which he said would reverse in the year ahead. He described the “quality of earnings” as good, noting a GBP 20 million non-cash gain from releasing a bad-debt provision, partly offset by an additional GBP 14 million of impairment costs. Earnings per share increased 17%, helped by prior-year buybacks. The ordinary dividend rose 15%, returning dividend cover to around 2.8 times. Next also returned GBP 3.60 per share via a B Share Scheme while it was out of the market for buybacks, and Wolfson said the company is now back in the market and plans to continue buybacks.
On a consolidated 53-week basis, Next reported GBP 147 million of cash from profits and GBP 24 million of cash attributed to the 53rd week. CapEx was GBP 168 million last year, and the company expects GBP 237 million this year, with the increase driven entirely by warehousing investment—particularly the Elmswell 3 facility. Wolfson said Next expects CapEx around GBP 250 million for the next three years as part of a warehousing program tied to growth.
Segment performance: retail pressure, online and international strength
In retail, total sales increased 2.4% and full-price sales rose 3.5%, but profit declined 5%. Wolfson attributed the margin pressure primarily to wage-related costs, citing the impact of national insurance and the national living wage, which he said totaled about 1.4% of sales. For the year ahead, Next expects retail sales to fall 1.5% and retail profit to decline 6%, with management expecting the prior year’s weather and competitive benefits to reverse in the first half.
U.K. online sales rose 10.2%, with full-price growth of 8.7%. Wolfson said the difference reflected increased warehouse capacity that allowed more clearance stock to be sold online. U.K. online margin improved to 18.2%, with gains largely coming from non-Next brands. For the year ahead, the company expects U.K. online sales growth of 4.6% and margin to increase to 18.8%, with Wolfson noting the margin change largely reflects the reversal of unusually large staff incentive payments after a strong year.
International sales increased 35% at full price and 39% in total. Wolfson said third-party aggregation accounted for about a third of the international business, with growth supported by added aggregators and changes related to Zalando warehouse consolidation. He said the company expects international sales growth of 14.3% in the year ahead alongside a 25% increase in international marketing spend, with margin forecast “broadly flat.”
Total Platform and customer metrics
Next reported GBP 90 million of profit from Total Platform and equity partners, up GBP 13 million year over year. Equity profit rose GBP 9 million and service profit increased GBP 4 million, with Wolfson citing the prior year’s lack of full-year contribution from onboarding FatFace. He said Total Platform generates around 20% profit on what Next charges clients and about 6% profit on their online sales. However, management said investors should not expect major acquisitions or transactions this year because the group lacks spare warehouse capacity to support a large deal.
On customer trends, Wolfson highlighted a 6% increase in U.K. credit customers, which he said was unusually strong versus the 1% to 2% growth seen historically, driven by uptake of a “pay in 3” offer. He said the product is less profitable in interest income than traditional revolving credit but supports higher sales. Overseas customer counts rose 31%, and Wolfson said average sales per overseas customer increased despite the influx of new customers, attributing this to improvements in conversion and average order value on the website. In response to a question on GLP-1 medications, Wolfson said Next has seen subtle sizing-mix changes in womenswear, with the most noticeable shift in “very large outsize,” and participation in sizes “22+” declining.
Warehousing expansion and cost control focus
Wolfson spent significant time on warehouse capacity, saying sales growth and higher levels of clearance stock online have driven utilization toward uncomfortable levels. He said the company will manage near-term constraints by moving reserve stock to other group warehouses, while investing in additional Elmswell 3 capacity. Management outlined a phased program including:
- Phase one on stream in 2027, adding about 10% capacity at a cost of GBP 48 million
- Phase two in 2029, with GBP 134 million of CapEx for part of the second chamber
- A final chamber the following year with an additional 17% capacity at GBP 125 million
Wolfson said the total program equates to GBP 307 million of CapEx and would add roughly GBP 30 million of operating costs, offset by around GBP 22 million of savings, implying a net cost of about GBP 7.3 million absent sales growth. He also said Next has bought land with planning permission for a further warehouse as a contingency.
On cost control and technology, Wolfson said Next is pursuing productivity gains, including from AI, but emphasized an application-led approach rather than creating a centralized AI department. He added that controlling fixed overhead growth is important to sustaining attractive returns on marketing spend, particularly internationally.
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.
