ii view: is management caution at Next a buying opportunity?

This FTSE 100 retailer fell in value by 29% during 2022 but is up by close to 15% so far this year. We assess prospects. 

First-quarter trading update to 29 April

• Full-price sales down 0.7%

Guidance:

• Continues to expect full-year pre-tax profit of £795 million

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products under both its own and other third-party brands. 

Next Retail operates over 460 stores across the UK and Ireland, along with almost 200 stores, mainly franchised outlets, overseas. Stores accounted for just over a third of sales during its last financial year. 

• Invest with ii: Top UK Shares | Share Tips & Ideas | Cashback Offers

Next Online has around 7 million UK customers and around 1.7 million overseas customers. Selling both Next and third-party branded products, it generated just under three-fifths of total 2022 sales. Its Finance business, providing over £1 billion in credit, generated most of the balance. 

For a round-up of these latest results announced on 4 May, please click here.

ii view:

This FTSE 100 retailer employs over 25,000 people. Its share of the UK clothing market is estimated to be around 7%. Group competitors include Marks & Spencer Group (LSE:MKS), ASOS (LSE:ASC) and Boohoo Group (LSE:BOO). Next previously announced the formation of a new division, focusing on growth initiatives including promoting its ‘Total Platform’ service, which is the effective outsourcing of its online operations to third parties and whose customers already include GAP and Laura Ashley. Other initiatives also include buying or investing in other brands who can then use its Total Platform service, along with developing the Next brand overseas. 

For investors, the tough economic backdrop for its customers persists with many expiring fixed mortgage rates still to be reset at higher borrowing costs. The ongoing cost-of-living crisis continues to underpin management’s estimate of a near 9% fall in annual pre-tax profit this year compared to the last. Business costs such as energy remain elevated, while the succession of CEO Lord Wolfson warrants thought given his importance to the company.

• 10 great UK shares that Warren Buffett would pick
• Big day for three FTSE 100 stocks all loved by Nick Train
• Insider: director thinks future’s bright for this high-yield stock

More favourably, Next sales and profit often exceed management’s now almost customary caution.   

Costs and shareholder returns remain a focus, diversification of both product and geographical region is enjoyed, while plans to generate longer-term growth warrant firm consideration. This follows significant investment already made in its online operations including both warehouses and software used.

For now, and despite required investor patience, this well-managed company appears to remain deserving of continued long-term investor support.  

Positives: 

• Both product and geographical diversity
• Majority of sales generated online 

Negatives:

• Uncertain economic outlook
• Chief executive considered key in prospects

The average rating of stock market analysts:

Strong hold