Another upgrade at Next as Mag7 results season gathers pace

The improved trading position at Next (LSE:NXT) has led to the full-year pre-tax profit estimate being raised from £995 million to £1.005 billion, a psychological threshold which would also set a new record for the group. This follows recent upgrades from £960 million to £980 million, before rising to £995 million last month.

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The revised number was prompted largely by full-price sales in the third quarter which grew by 7.6% against estimates of 5%, underpinned by strong growth contributions from online (7.9%), retail (2.9%) and overseas online (20.4%). The overseas number is particularly promising given the group’s growth aspirations to add to the success being seen domestically, and sets the scene for a high-quality set of full-year results.

Even so, the group also retains its slightly conservative approach in terms of its predictions for the fourth quarter, surmising that some of the outperformance in the latest months are due to the early arrival of some colder weather, thus pulling forward some sales from the end of the year.

Nonetheless, Next has raised fourth-quarter full-price sales growth from 2.5% to 3.5%, leading to a full-year return of £5.02 billion, which would represent a rise of 4.9% from the previous year, and which is ahead of its previously guided number of £4.98 billion.

The market consensus of the shares as a hold, which has been in place for some considerable time, has missed the boat somewhat. The shares may now be trading slightly above their longer-term valuation and, of course, the retail arena remains fiercely competitive, but Next seems to have an unparallelled understanding of its market which has consolidated its leading position.

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A share price hike of 48% over the last year compares to a gain of 12% for the wider FTSE100, and over the last two years the shares have added 104%. Based on past performance, it would appear that the naysayers who have doubted the stock’s trajectory may continue to do so at their peril.

Market snapshot

In the US, the Nasdaq hit another record high as expectations for the upcoming slew of mega cap technology earnings releases shifted up another gear. Google-owner Alphabet Inc Class A (NASDAQ:GOOGL) was the first of five of the “Magnificent Seven” to report this week, and its after-hours release propelled the shares 6% higher as the company reported key metrics which both beat expectations while also keeping the AI dream of future riches very much alive. 

Given that there are still reports to come from Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc Class A (NASDAQ:META) this week, let alone any number of core economic releases such as inflation and employment figures, there is inevitability an added fragility with each of the main indices having tested new highs over recent weeks.

In the meantime and in the absence of any notable shocks, the onward march continues, with the Dow Jones having added 12% so far this year, the S&P500 22% and the Nasdaq 24.7% amid these heightened expectations.

The looming spectre of the Budget in the UK, which has dampened both corporate and consumer confidence since the arrival of the new government, will today reveal the sectors which will be targeted both in terms of austerity and growth. It will also leave investors assessing the impact of the announced measures, which has left the main UK indices in the red at the open ahead of the market nemesis of uncertainty.

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The FTSE250 has managed gains in the year so far, although these have been shaved of late and currently stand at a 4.5% return. In the FTSE100, Standard Chartered (LSE:STAN) gained after rounding off what has been a largely comforting banking quarterly season, although the latest developments on the car financing probe weighed on Lloyds Banking Group (LSE:LLOY) in early exchanges.

More positively, the upbeat update from Next pushed its shares higher and those of Marks & Spencer Group (LSE:MKS) in a read across. Nonetheless, the generally sombre mood pervading the UK market led the FTSE100 to initial losses, reducing its gain in the year to date to 5.8%, with limited positive catalysts in sight at least until the Budget announcements can be assessed.