Next (LSE:NXT) has a rich history of outperforming the broader retail market, which explains its 18% share price rise in 2025.
This is higher than the broader FTSE 100‘s 12% increase since January 1. And it’s all the more remarkable given the gloomy outlook for Britain’s retail sector
However, Next’s gravity-defying act is showing signs of fatigue, and its shares dropped sharply on Thursday (18 September) after it warned things could get tougher.
I’m wondering if this pullback to five-month lows marks an attractive dip-buying opportunity.
Sales rise
Next’s warning came as it announced first-half financials that matched forecasts. Full-price sales rose 10.9% in the six months to July, which drove pre-tax profits 13.8% higher.
That’s a pretty decent result, given the troubles in UK retail that I alluded to earlier. Next sources around four-fifths of sales from its home market.
But these robust sales need to be seen in the context of one-off factors, too. The massive cyber attack on Marks & Spencer‘s operations gave the company’s sales a boost, as did seasonally correct warmer weather during the half.
Cooldown expected
With these items no longer providing support, the Footsie retailer’s predicting a sharp slowdown as the “anaemic” UK economy bites.
Full-price UK sales are tipped to grow just 1.9% in the second half. That’s down sharply from 7.6% in the first half.
As a consequence, full-price sales growth at group level’s expected to decelerate to 4.5% from 10.9%. Growth over the full financial year (to January 2026) is expected at 7.5%.
Too bearish?
This might not come as too alarming for long-term investors. The problem, however, is that Next has also said “the medium to long-term outlook for the UK economy does not look favourable,” citing:
- “declining job opportunities,”
- “new regulation that erodes competitiveness,”
- “government spending commitments that are beyond its means,” and
- “a rising tax burden that undermines national productivity.”
Next — whose chief executive Lord Wolfson is also shadow Attorney General — is perhaps right to be cautious given recent economic data. The question is whether the company is too pessimistic about the risks it faces, and whether investors have overreacted to its warnings on future sales.
Garry White, analyst at Charles Stanley, reminds us that guidance from the FTSE firm “is typically conservative, with the company known for under-promising and overdelivering on its financial results.”
Next’s raised its own estimates several times in 2025 alone, maintaining its long record of upward revisions.
Here’s what I’m doing now
Having said that, I’m not tempted to add Next shares to my own portfolio following this week’s fall. The risks are significant as rising inflation and weak economic growth put pressure on consumer spending. The retailer also faces intense competition and rapidly rising costs.
To my mind, this outweighs the exceptional progress it’s making online and the strength of its brands.
Today Next trades on a price-to-earnings (P/E) ratio of 16.8 times. This is too high for my liking, and leaves the share price vulnerable to further weakness, in my view.
