Next (LSE: NXT) shares were slightly down this morning despite the retailer delivering a very positive update on trading to the market.
But I’m not sure many investors will be complaining given then great run of form witnessed in 2025 so far.
Sales jump higher than expected
Let’s look at those headline numbers first.
Supported by the very hot weather we’ve seen over the last couple of months, full price sales rose 10.5% in the 13 weeks to 26 July. This was more than £49m ahead of previous guidance (growth of 6.5%). Interestingly, Next also attributed this overperformance to the cybersecurity issues experienced over at Marks & Spencer.
Outside of the UK, sales were also on the march due to the company’s digital marketing being “more effective than anticipated“.
All told, I’m not sure existing investors could ask for more. Speaking of whom, it’s worth pondering just how far the share price has come in 2025 alone.
Great gains
Had someone put £10,000 to work in the stock at the beginning of the year, they’d now find their stake worth somewhere is the region of £12,500. Actually, this gain should be a little higher by tomorrow (1 August) after the final dividend for the previous financial year is paid.
Out of interest, anyone backing the company five years ago would have easily doubled their money by now. Such a gain has vastly outperformed the FTSE 100. It’s up ‘just’ 55% in price since July 2020.
This shows how stock picking has the potential to be very lucrative. It also demonstrates that one doesn’t necessarily need to buy anything too racey. Next is a quality business. But I’d never class it as a gung-ho growth stock.
Looking expensive
How much of the recent good form is priced in? At face value, I reckon quite a lot.
The shares change hands on a price-to-earnings (P/E) ratio approaching 18. That’s more than the average UK stock. It’s also a fair bit more than Next’s average P/E over the last five years (12.6).
This doesn’t mean the shares won’t keep going up, of course. It looks like we might get even more hot weather in August.
But today’s movement is fascinating given that management also increased guidance on full price sales for the second half. Growth of 4.5% is now expected, up from 3.5%. As a result, pre-tax profit for the full year is anticipated to come in £25m higher at £1.105bn.
And yet the share price is down. To me, that suggests the market believes Next shares might need to pause for breath. Even CEO Simon Wolfson sold over £12m worth of stock back in May.
Quality stock
Predicting where the share price will go in a short space of time is arguably a waste of time. Here at Fool UK, we’re only truly interested in building wealth over the long term.
But if we are to play that game, I wouldn’t be surprised if we saw some sideways movement in the next few weeks and months, especially if inflation rises and consumers tighten their purse strings.
Notwithstanding this, I continue to believe that Next is among our best listed retailers and one that will probably continue to reward those holding its shares.
