Next's second-quarter full-price sales rose by 6.9%. This was driven by 10.0% growth in its Online channel and a 2.2% rise in Retail.
The group was pleased with the end-of-season sale performance, and clearance rates were ahead of group expectations.
Full-price sales are expected to grow 0.5% in the second half, implying full-year growth of 1.85% to £4.7bn.
Full-year pre-tax profit guidance has been raised by £10m to £845m.
The shares opened flat following the announcement.
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Our view
Next has got into a habit of beating market expectations on the upside lately, and today's second-quarter trading statement continued the hot streak.
Full-year pre-tax profit guidance got a small bump up. Increased online sales were the main driver, with sales in this channel rising at double-digit rates. However, Next has been cautious about how far to nudge up guidance. We like this prudence, which moves the odds in favour of more earnings surprises on the upside rather than disappointments as the year progresses.
But it's important not to get too carried away. Next has pointed to consumers' rising wages as a recent tailwind but expects this to be offset by inflation, which is proving stubborn. That means despite recent upgrades to guidance, analysts are still forecasting a low single-digit decline in operating profit for the year - reflecting some very real challenges ahead.
To cope with its own rising costs, Next has been raising prices. Selling prices are expected to be up about 7% over the Spring and Summer seasons. Next remains a go-to clothing retailer for when consumers have a bit extra to spend. Just how much real incomes are squeezed in the coming months will be a key metric to watch.
Next still has a strong high street presence and with over half of sales online, it's well placed to pivot towards the latest consumer preferences. Its shops typically have shorter, more favourable leases than peers, and are more focussed on out-of-town retail outlets that have fared better. That gives extra flexibility and should allow it to make the best of tougher conditions.
The rapid growth in online and distribution services means operations aren't as efficient as we'd like. This does open the door for improvement though, and it's something Next's management has called out as an area of opportunity.
Growth in its third-party LABEL operations, which charge a commission for sales through the Next platform, is another bright light. With big names like Reiss and Gap now participating in the programme, opportunity lies ahead. These sales are lower margin, but they also come with very little risk.
This financial year the group plans to maintain its dividend flat at 206p per share, while still completing £220m of share buybacks. Analyst forecasts suggest these are covered by cashflows, but nothing is guaranteed.
Next's always been a top dog in the retail industry, but it's a tough sector to be in during times of economic uncertainty. It's weathering the storm admirably and looks well-placed to prosper when the outlook brightens. That's reflected in a valuation climbing back towards its long-term average.
Next key facts
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