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The next one (LSE:NXT) has proven to be one of the UK’s most impressive trading stocks. Even in difficult times, i FTSE 100 the company has grown a good growth record.
The retailer was there again on Thursday (26 March), raising profit forecasts for the current financial year (until January 2027). Next’s share price responded strongly to the good news and ended up up 5% on the day.
But can the business continue to impress? I’m not so sure…
Excellent performance
First let’s analyze the key points of today’s strong announcement. In it the company said full-year sales rose 10.8% in the financial year ending January 2026. Pre-tax profit was £1.2bn, up 14.5% year-on-year and ahead of recently revised estimates.
Sales in the UK continue to rise significantly. And in overseas markets, revenue rose by double-digit percentages.
But what is Next’s secret as the retail sector struggles? According to Hargreaves Lansdown analyst Aarin Chiekrie, “quality over quantity is what consumers want, which leads them to buy fewer, higher-priced, and better-quality items.”
As I say, Next has also raised its pre-tax forecasts for the current financial year, sending its shares higher. These are now believed to be just over £1.2bn, up £8m from earlier forecasts. Still, it shows the huge and growing pressures the retailer is facing – the 4.5% growth is far below what was seen last year. Income is said to rise at a similar rate, too.
Brewing problem
But in the current climate, I think both sales and profit forecasts may look overly optimistic. Why? Retail sales in key markets are at risk of falling as the Middle East explodes. In the UK, British Retail Consortium (BRC) chief executive Helen Dickinson said today “consumer confidence [has] collapsed as the conflict in the Middle East raised the prospect of higher inflation in the coming months.“
The war is also driving up costs, with Next predicting £15m worth of extra costs this year due to higher fuel costs and other factors. This assumes that the war lasts three months. The problem is, predicting when the conflict will end is almost impossible to call, casting a cloud over this year’s revenue and profits.
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I can’t believe this threat was factored into Next’s calculations, and especially after today’s share price surge. The retailer trades at a forward price-to-earnings (P/E) ratio of 16.5. That’s above the 10-year average of 12-13, and also above the broader FTSE 100 going forward.
Some would argue that the retailer’s strong brand strength and product quality make it worth the premium rating. After all, it has been backed by strong, industry-beating sales and earnings for years.
A valid point of view. Yet to me, the signs of a sharp market downturn — combined with that massive valuation — leave enough room for Next shares to decline before too long. Despite its strength, I prefer to buy some UK stocks right now.
