Next Raises Guidance Again as UK Customers Buck Economic Gloom

The UK’s retail sector has long been a bellwether for consumer sentiment, and Next PLC (LSE:NXT) has once again proven its resilience. The British retailer has now raised its profit guidance for the second time in 2025, defying expectations in an environment of lingering economic uncertainty. This article examines the drivers behind Next’s strong performance, the broader trends shaping UK consumer behavior, and the risks that could test its momentum in the coming months.

Next’s Q1 Surge: Weather, Strategy, and Caution

Next’s first-quarter results delivered a 11% year-on-year rise in full-price sales, far exceeding its initial 6.5% forecast. The uplift was fueled by an unusually warm spring, which boosted demand for summer clothing—a segment where Next’s in-house designs and agile inventory management shine. Online sales rose 8.9%, while international online sales soared 30%, underscoring the appeal of its brand abroad.

The retailer’s pretax profit guidance was lifted to £1.08 billion, a 6.8% annual increase, while post-tax EPS rose to 698.1 pence. Yet, Next tempered enthusiasm: it warned that some sales had been “pulled forward” from Q2, and that tougher comparisons with last year’s strong autumn/winter period loom. Additionally, the April 2025 national insurance increase—a stealth tax hike—threatens consumer spending power later in the year.

UK Consumers: Prudent But Not Penniless

Next’s success reflects a nuanced picture of UK consumer behavior. Despite stagnant wage growth and inflationary pressures, households are spending selectively. Data from the Deloitte Consumer Tracker shows confidence at -9.5% in Q2 2024, the highest in three years, driven by real income growth (wages outpacing inflation) and optimism around post-election economic reforms.

Key trends include:
- Essential vs. Non-Essential Trade-Offs: While core spending on groceries (-4%) and fuel (-8%) declined, consumers prioritized experiences over goods. Travel spending rose 5.7%, with travel agents and airlines benefiting.
- “Buy British” Surge: 71% of shoppers plan to buy more UK-made products, a shift fueled by import cost concerns and patriotism.
- Value Shopping: 47% of consumers cut grocery costs via bulk buying, discount brands, and loyalty programs—a strategy Next’s affordable, stylish offerings cater to.

Risks Ahead: The Second Half Test

Next’s cautious outlook for H2 2025 is justified. Risks include:
1. Weaker Comparisons: Autumn/winter 2024 sales were exceptionally strong, making growth harder to achieve.
2. Tax and Inflation: The national insurance hike could squeeze disposable income, while energy price volatility remains a wildcard.
3. Retail Saturation: Next expects retail sales to flatten as summer demand fades, leaving online and international channels to carry growth.

Conclusion: A Resilient Play, but Not Without Limits

Next’s Q1 performance is a testament to its ability to navigate cyclical trends. Its focus on value, agility in inventory, and strong online infrastructure have positioned it to capitalize on shifting consumer priorities. The 1.2% stock price rise on the guidance update reflects investor optimism, but the path ahead is fraught with hurdles.

Crucially, Next’s revised pretax EPS of 919.6 pence and its 9.7% post-tax EPS growth (to 698.1 pence) signal operational strength, even as it braces for tougher conditions. The July sales update will be pivotal—should H2 sales hold above expectations, Next could reaffirm its status as a defensive retail stock. However, with UK consumer confidence still below pre-pandemic levels and the economy’s recovery uneven, investors should remain vigilant.

In a market hungry for stability, Next’s story is compelling—but it’s one that hinges on consumers continuing to defy economic gravity.

Data as of April 2025. Past performance is not indicative of future results.