Citi upgraded Next to Buy from Neutral and raised its price target to £184 from £155 on Tuesday, citing the retailer's expanding international footprint and improving margin trajectory. The stock and shares of Marks & Spencer both rose more than 1% in London trading.
Analysts at Citi highlighted Next's five-year compound annual growth rate of 20% in its international segment, which now accounts for over 20% of product revenues. The firm expects the international business to grow at a 17% four-year CAGR through fiscal 2029, positioning Next to close the valuation gap with peer Inditex, which has historically traded near 23 times forward earnings. Next's current multiple of around 14 times forward earnings reflects its transition toward a more global retail peer group.
Citi maintained its Buy rating on Marks & Spencer, emphasizing structural tailwinds in both its Food and Fashion divisions despite ongoing margin pressures. The analyst noted M&S's Fashion EBIT margin trails Next's by roughly five percentage points, with an even wider gap of about ten percentage points in online margins. Higher fulfilment and technology costs—each representing around four percentage points of sales—further weigh on M&S's cost structure relative to Next, despite similar gross margins.
M&S's recent logistics investments include the £67.5 million acquisition of an ASOS warehouse in Lichfield, which Citi estimates will expand online fulfilment capacity by more than 200% compared to the existing Castle Donington site. The upgrade is expected to deliver material benefits from fiscal 2029 onward, including a modeled three-percentage-point improvement in online EBIT margin by fiscal 2031. However, temporary dual-running costs of £30 million are projected to pressure Fashion margins in fiscal 2028.
In the Food division, Citi forecasts 13.1% year-over-year sales growth in the first half of fiscal 2026, supported by Worldpanel data. Gross margins will face headwinds from price and loyalty investments, with projected drags of 120 basis points in fiscal 2027, 30 basis points in fiscal 2028, and another 30 basis points in fiscal 2029.
