Everything Right Except the Price

Second quarter trading statement for the thirteen weeks to 1 August 2026; financial year ends late January, so the current year runs to January 2027. All figures in sterling; the share price and earnings per share are quoted in pence (15,045.00p = £150.45 per share).

Next sells clothing and homeware through the three routes its own trading statement separates out: UK retail stores, UK online, and international online.

Inside UK online there are two very different businesses. One is Next's own-brand range. The other is Label — the platform where Next sells other people's brands, effectively acting as the shop window and the delivery machine for third parties rather than the designer of the product.

Underneath that sits the capital structure, which matters more than it looks. Next runs with net borrowing (£1,713m at the January 2026 year end) and buys back its own shares — £524m planned this year. Share count has fallen from 132.95m to 114.15m since 2021. The company's guided profit figure is struck before the cost of the bond, before amortisation (the accounting write-down of intangible assets such as acquired brands), and before the profit attributable to shares Next does not own in subsidiary companies.

Next came out with a trading statement for the second quarter today. Full price sales in the second quarter were up 9.2% versus the previous year. That was materially ahead of their own forecast for the period, which they had set at 4.0%.

On a basic level, sales were £70m ahead of forecast — £19m in the United Kingdom and £51m from overseas. A huge chunk from overseas sales.

The company puts it down to three things: pent-up demand in the Middle East and Northern Europe after a weaker first quarter; warm United Kingdom weather matching last year's summer, which it hadn't anticipated; and higher spending on marketing that returned more than expected.

The split underneath the headline is stark.

Second quarter full price sales growth by channel

So the domestic growth is coming from the marketplace business and from overseas, not from the core Next brand at home.

As a result, they have upgraded their profit guidance for the year by £25m. They anticipate pre-tax profit of £1,243m, and this is before the cost of the bond, the amortisation, and the profit attributable to shares that we do not own in subsidiary companies. They aren't anticipating any exceptional items throughout the remainder of the year.

Full year guidance — year to January 2027

The most telling feature of the statement is what management did not do. They beat the quarter by £70m of sales, but took only £15m of that through to the profit line, and left second half guidance completely unchanged at 5.0%. International growth is expected to moderate to around 14% in the second half against tougher comparatives, following last year's European logistics upgrade.

That restraint is their style, and it is why the upgrades keep coming. Next has a bit of a history of this. They're quite pessimistic in their forward guidance, I tend to find, and then manage to overachieve on their actual results. One broker counts nineteen profit upgrades since the beginning of the 2024 financial year, and the company had already raised guidance twice this year before today.

Interim results are due on 17 September 2026.

Turnover has risen every year since the pandemic year, from £3.5bn to £6.9bn, with growth of 12.8% in the year to January 2026 — the fastest since the 2022 rebound. Pre-tax profit reached £1,199m and reported earnings per share 745.4p.

Financial history — years to late January

NAV is net asset value — what the company's assets are worth after deducting everything it owes. It is here for context only; this is an earnings-based valuation, not an asset one.

Shares in issue have fallen from 132.95m to 114.15m over the period, a reduction of 14.1%, which is why earnings per share have compounded faster than profits.

• Where the growth is actually coming from: international online (+36.9% in the quarter, +23.9% across the first half) and Label (+13.2%). The core Next own-brand online business went backwards at −1.0% and stores were −0.3%.
• The guidance culture: pessimistic forward guidance, then overachievement. Nineteen profit upgrades since the start of the 2024 financial year, and two raises already this year before today's.
• The restraint signal: £70m of sales beat, only £15m allowed through to profit, second half left completely unchanged at +5.0%. That is deliberate, and it is the mechanism that produces the next upgrade.
• The second half comparative: international is guided to moderate to around 14% against tougher comparatives after last year's European logistics upgrade. The 36.9% rate is not the run rate management is underwriting.
• The buyback lever: £524m this year, £14m more than previously guided, keeps the share count falling and the earnings per share line moving.
• The starting price: up 60% over two years and 22% over the last twelve months, rising significantly from May lows. That is the part that concerns me.

I do think that Next is incredibly well run. While other companies seem to be struggling going forwards, they seem to continue to build and build on their earnings per share growth, and their revenue continues to tick up nicely.

They are an exceedingly well-run company, and for reference they have had a very stellar two-year share trajectory. They're up 60% over the last two years and 22% over the last twelve months. They're currently rising from May lows quite significantly, so they've been on an upward trajectory on their share price.

I think the share price might continue to rise. But for my feelings they are a bit overvalued, and a lot of the positivity revolving around the company has now kind of come all the way through. I think there's really more downside risk than upside risk for investing in Next.

I'm minded to use the post-tax earnings per share figure of 812.9p for the year, which is the company's own revised guidance. I'm giving them a longer-term earnings per share growth rate of 6%, with a valuation multiple of 8 and no valuation uplift or reduction.

I'm giving them a probability of 64% of hitting the valuation I have, and that's really because I think they are overvalued even on this anticipated earnings per share figure. As I've said, they have a tendency of under-guiding and then overachieving on results, but nonetheless I think they are highly valued. They've got a price/earnings ratio that is a bit on the high side. The risk factor is 29%.

One point on the reference price. The 15,045p used here is the level before the market had fully absorbed this morning's statement; the shares rose around 7% on the day, touching roughly 15,900p and approaching an all-time high. On that higher level the value opportunity would be nearer −39% rather than −36%.

VALUATION SNAPSHOT

The arithmetic: ((812.90p × 6% × 8) + 812.90p) × 8 = 9,624.74p, with no uplift or reduction applied. Against 15,045.00p that gives a value opportunity of −36.0%. I'm coming up with a negative value opportunity, so it is a sell for me.

I expect this to be an uncomfortable call in the short term. Here is the bull case against me, stated properly.

• The upgrade habit is real and repeatable: nineteen profit upgrades since the start of the 2024 financial year, two raises this year before today, and second half guidance deliberately left at +5.0% after a £70m beat. If they do it again, the earnings base I am valuing moves up under me.
• International is running far hotter than guidance: +36.9% in the quarter and +23.9% across the first half against a guided ~14% for the second half. If that moderation does not arrive, both sales and profit guidance go up again.
• Momentum in the shares: up 60% over two years, 22% over twelve months, rising significantly from May lows, and approaching an all-time high after the statement. I think the share price might continue to rise — my −36% is a statement about value, not about the next three months.
• The buyback keeps working: £524m this year, raised again. A shrinking share count lifts earnings per share regardless of what the multiple does.
• Label is offsetting the core: +13.2% growth in third-party brands is doing the job the own-brand range (−1.0%) is not, and that is a structurally different, platform-like business.
• My multiple may simply be too mean: a multiple of 8 is a demanding hurdle for a compounder of this quality. The market plainly applies a higher one, and has done for years. If it carries on doing so, these shares will not derate to my number.

• The core brand turning: UK own-brand online sales returning to growth from −1.0%, so the domestic story is not resting entirely on Label and overseas.
• International holding its rate: second half growth coming in materially above the guided ~14% against the tougher comparatives, which would justify a higher long-term growth rate than the 6% I have used.
• A beat that reaches the profit line: at the interim results on 17 September 2026, an upgrade of size that is passed through rather than held back would change the earnings base rather than just the sales base.
• A better entry price: a fall towards 9,624.74p, or anything that closes a meaningful part of a 36% gap, turns the arithmetic around without needing any change to my assumptions.
• A case for a higher multiple: if the mix shift towards Label and international proves the earnings deserve better than 8x on a durable basis, the valuation moves, and so does the verdict.