Shares of British retailer Next fell by more than 6% in early trading on Thursday after the company warned that employment opportunities in the United Kingdom are likely to diminish in the second half of the year, raising concerns over consumer spending.
The drop made the stock the top loser on the FTSE 100 index, reversing some of the gains it had accumulated earlier this year.
Despite the market reaction, Next maintained its forecast for full-year pretax profit of £1.105 billion, underlining confidence in its operations even as it flagged caution about the broader economic outlook.
“Next’s decision to not update its profit guidance may have taken the shine off its strong sales growth figures, causing the shares to drop at the open,” Interactive Investor’s Richard Hunter said.
“Frequent guidance upgrades from Next mean investors often assume expectations will be raised alongside earnings,” he added.
First-half earnings buoyed by strong sales
For the six months through July, Next reported a 13.8% rise in first-half profit, with pretax profit reaching £515 million, compared with £509 million in the same period last year.
Adjusted pretax profit rose almost 14% year-on-year, helped by an 11% increase in full-price sales and total group sales growth of more than 10%.
The company’s performance was bolstered by a mix of favourable weather, robust international demand, and significant disruption at rival Marks & Spencer following a cyberattack.
Analysts at Hargreaves Lansdown said the results outpaced expectations, noting that Next has proved resilient despite a challenging macroeconomic backdrop.
Outlook for the second half turns cautious
Even as it posted healthy results, the retailer struck a cautious tone about the months ahead.
Next said sales momentum was expected to slow, with full-price sales growth forecast to decelerate to 4.5% in the second half, compared with 10.5% growth in the second quarter.
This would bring full-year growth in full-price sales to 7.5%.
The company cited a weakening labour market, with the effects of April’s employer tax increases expected to continue weighing on household budgets and spending.
With about 80% of its sales generated in the UK, Next remains a key barometer of consumer demand.
Broader economic pressures weigh on retailers
Industry data last week showed British shoppers spent more in August, but retailers remain worried about the impact of tax speculation and potential rises in unemployment in the months leading up to the government’s November budget.
Concerns about policy pressures are mounting across the sector.
In August, 60 retail executives wrote to Finance Minister Rachel Reeves, urging her to avoid imposing further taxes on the industry.
Next’s Chief Executive Simon Wolfson reinforced the cautious outlook, warning that the medium-to-long term prospects for the UK economy remain subdued.
“At best we expect anaemic growth, with progress constrained by four factors: 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,” he said.
Next said that its job vacancies have dropped by 35% over the past two years, with sharper declines in store roles.
At the same time, applications have surged 76%, leaving each vacancy attracting 2.7 times more candidates than two years ago.
International growth offers opportunities, say analysts
While Next faces headwinds at home, analysts point to significant opportunities abroad.
The company operates 460 stores in the UK and Ireland and has an online presence in over 70 countries, selling its own label as well as more than 700 other brands.
“Despite Next backing its full-year guidance, weak UK economic growth gives reason to be cautious,” Hargreaves Lansdown analyst Aarin Chiekrie said.
“Despite this, the retailer is well-placed to continue dominating the UK market and has international growth options. The untapped size of markets in Europe and the Middle East offer Next a big opportunity, and provides upside potential to its current full-year guidance,” he writes.
Hunter said the retailer is seeing “explosive growth” in the US.
“Its buyback program is paused given its shares are expensive, but the company may look to deliver a special dividend later in the year,” he added.
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