NEXT Lifts H1 Dividend Amid UK Cautious Outlook

NEXT plc delivered a robust first-half performance, with total sales rising 9% and profit before tax increasing 10.5%. The retailer exceeded its internal target for full-price sales growth, which climbed 7.7% against an expected 4%, aided by a normalized level of end-of-season markdowns. According to data from GN markets/earnings (en-US), the company attributed the divergence between total and full-price growth to prior-year comparisons where strong performance had resulted in minimal discounting.

Profit margins improved by 0.3 percentage points, reflecting better cost management and sales mix. NEXT plans to raise its interim dividend by 12.6% to 98 pence per share, aligning the payout with earnings per share growth. Chief Executive Simon Wolfson indicated that while the group remains profitable, the company has adopted a more cautious stance on the second-half UK outlook due to anticipated pressure from fuel and inflationary costs.

International Expansion Drives Revenue Growth

Overseas markets were the primary engine of growth, with international full-price sales surging 24% and total overseas sales up 26%. Europe contributed nearly £100 million to the £133 million increase in overseas full-price revenue, driven by a 28% rise in sales following the integration of Zalando. This expansion helped offset softer domestic demand, as the company successfully scaled its digital presence in key European markets.

In the Middle East, sales rose 14%, though the first quarter was impacted by regional disruptions. Wolfson noted that pent-up demand in the second quarter led to a 37% growth rate, which he cautioned should not be viewed as a normalized run rate. The United States business also recorded growth for the first time, maintaining margins above 10% despite lower efficiency from shipping merchandise from the UK. International profit margins dipped 0.4 percentage points due to shipping surcharges, but the company expects price adjustments to render this impact cost-neutral for the full year.

Owned Brands Outperform Core Retail

Growth in NEXT’s wholly owned brands and licences (WOBL) significantly outpaced the core business, rising 33.5% in the UK and 82% internationally. Wolfson stated that more than two-thirds of the group’s first-half growth came from these non-NEXT brands. This shift suggests a structural change in the company’s revenue base, reducing reliance on the slower-growing core NEXT brand, which saw UK online full-price sales increase by just 2.1%.

The retailer highlighted that this diversification supports overall profitability, as owned brands often command higher margins. While UK retail full-price sales declined 1.7%, the strength in online channels and branded merchandise helped sustain the group’s momentum. The company noted that third-party branded sales also grew, further broadening its product offering without requiring significant changes to pricing or product development strategies.

Guidance Maintains Full-Year Profit Targets

Despite the cautious outlook for the UK in the second half, NEXT has maintained its full-year guidance of 6.7% sales growth and approximately £1.255 billion in profit before tax. The company expects international margins to remain stable at around 15.1% year over year. Management indicated that after capital expenditure and ordinary dividends, around £500 million may be available for additional shareholder distributions, underscoring its commitment to returning capital to investors.

Wolfson emphasized that the reduction in second-half UK sales expectations is a proactive response to macroeconomic headwinds rather than a signal of fundamental weakness. By maintaining full-year targets, NEXT signals confidence in its ability to navigate inflationary pressures while leveraging its growing international footprint and owned-brand portfolio to sustain profitability.