Market commentary

“We already knew Next was topping expectations, but today’s £12m upgrade to FY profit guidance adds a certain je ne sais quoi.

“The guidance upgrade and growth in H1 profit before tax feel like the standout features here, but the results add much needed context to the international flavour of Next’s recipe for success.

“For starters, H1 online international sales growth outstripped company guidance and substantially drove total product sales.

“But will the second half be quite so spectacular for this increasingly important part of the business? Next might have upped H2 guidance for online international sales growth to 20.5%, but it acknowledges tougher comparatives. 

“It also notes that a significant proportion of international growth has been driven by increased digital marketing, with just 1% attributed to underlying growth. Results for the current period will offer real insight into how sustainable this is over the longer term.” 

“The other side of the coin is that things look softer in the UK. Margins have improved slightly, which does counteract the sales slowdown in retail stores, but perhaps the key is the trim to H2 UK sales growth expectations from 2.8% to 2.0%. While the UK might provide Next’s foundations, it looks increasingly like the retailer has its eyes trained overseas in search of growth.”

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Barratt Redrow’s headline numbers might have met expectations, but next year’s potential for slowing completions looks a troubling snag.

We already knew Barratt Redrow was towards the top end of guidance for FY2026 with 17,667 completions, but next year looks a little trickier. Trimmed guidance of 17,500-17,900 completions for the current year actually allows for a possible dip, with planning delays cited as the key culprit.

Then, there’s the issue of margin deterioration. Adjusted gross margin slid 210 basis points to 15.3%, indicating the business paid a pretty hefty cost to get completions over the line. Incentives are set to stay elevated in the current year, while build cost inflation is projected at between 3% and 4%. If lower margins persist and completions slow or decline, profits may be in peril.

While Barrat Redrow acknowledged enacted planning reforms may improve its ability to build, it clearly thinks further systemic change is needed. It also called for more assistance for builders and buyers alike to support the sector. 

For investors, this gloom was accompanied by confirmation of their final dividend being cut to a token penny. Having seen its shares trading at what it considers a discount, Barratt Redrow is instead prioritising buybacks as its preferred form of shareholder returns. However, this may turn off income-focused investors.

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WH Smith has again delivered bad news on profits, as muted revenue growth appears to have been gobbled up by rising costs. 

While not explicitly a downgrade, today's trailed FY group profit before tax and non-underlying items of approximately £75m is right at the bottom of prior guidance, itself cut twice this year, and significantly below the £108m achieved the year prior. 

Revenues might be edging higher, it’s margin trouble that’s creating the problem, as promotions and inflation-related costs bite.

The gap between total and like-for-like revenue growth shows most of WH Smith’s gains are coming from opening new locations, rather than improving sales in existing stores. In conjunction with the impact of promotional activity on margins, it would seem WH Smith is having to spend money to make money.

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Trainline's newest numbers might not scream full steam ahead, but they may steady the journey after a bumpy few weeks for shareholders.

While net ticket sales remained broadly flat, total group underlying revenues dipped slightly as a drop in UK consumer revenue weighed. The business says demand in the UK remained strong throughout the period, but highlighted fare freezes and operational challenges such as strike action and weather-related disruption as headwinds. 

Tightening of refund rules also significantly reduced UK consumer revenue. New industry policy means certain refunds must be requested by the end of the day before a journey, eliminating the prior generous, and ripe for exploitation, 28 day post journey window.

Numbers might remain in line with guidance, but given that Trainline’s share price was derailed last month by a regulatory blow from the CMA and hasn’t clambered back onto the tracks since, it would have helped shareholder confidence if the business had knocked things out the park. 

But the numbers here are maybe not impressive enough to distract from the regulator’s ongoing investigation into possible drip pricing. Here, the CMA is essentially checking whether Trainline shares full ticket prices, including any mandatory fees, with customers early enough in the booking process. To be clear, no wrongdoing has yet been found.

What might offer investors some cheer is a newly announced 12-month share buyback programme, covering as much as £100m. Coupled with steady, if unspectacular, performance and unaltered guidance, this may offer shareholders reassurance that the business is still chugging along despite regulatory issues.

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Primark is turning to at-home delivery with like-for-like sales growth from existing stores seemingly stuck in transit.

The high-street giant, which currently exists as ABF’s retail arm, expects total sales to grow by 2% in Q4, but new stores look like the driver here. Like-for-like sales are slated to fall by 3%, with a 4.3% dip on the Continent standing out as a weak spot. 

With investment in price, product, and marketing not yet moving the needle on sales growth, Primark has taken a big leap with the announcement of home delivery. 

However, detail is pretty light on when this will actually happen, with the business confirming only that it will be available in Great Britain ‘in the future’. The business’s experience with Click & Collect and online channels will of course help, but sending products to customers’ doorsteps is a significant economic and logistical challenge, and may take time to implement.

Turning to ABF’s food business, there are continued issues for Sugar, with adjusted operating losses from the division now seen as coming at the higher end of guidance amid low prices in Europe. 

With adjusted operating loss expected to deepen to between £70m and £170m in 2027, the division looks like being the headache of the soon-to-be independent Food business. However, recent positive pricing moves may sweeten things a little for ABF in future years.

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We already knew the problem for Dunelm is that while sales are growing, stubborn profits refuse to budge. 

While today’s strategy update shows the retailer has a clear plan to change this, investors shouldn’t anticipate any short-term movement, as adjusted profit before tax is slated to remain flat across FY27. 

The problem for Dunelm has been steadily growing operating costs, which rose by nearly £30m last year to largely undo the gains offered by higher revenue and gross margin improvement. Dunelm’s answer is its ‘Winning Hearts & Homes’ stratagem. 

Key to this is the removal of £100m in what Dunelm calls unproductive costs over the next three years, while boosting capital expenditure by approximately £125m above its current run rate over the period. In return, the business has its sights set on improving revenue growth with store and digital expansions, as well as better customer loyalty. 

The upshot is that FY27 looks like being a year of investment and refinement, rather than a year of profit growth, particularly as Dunelm noted that heatwaves led to a significantly softer start to trading. For investors, that means exercising a little patience as they wait to see if Dunelm’s plan will live up to its kitschy title.

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