Interactive Investor

ii view: Next now confident in generating long-term growth

12th April 2023 11:34

by Keith Bowman from interactive investor

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While the cost-of-living crisis is expected to hinder performance near term, plans to kick-start growth beyond that are in place. We assess prospects.

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Full-year results to 31 January

  • Revenue up 8.4% to £5.15 billion
  • Pre-tax profit up 5.7% to £870 million
  • Final dividend of 140p per share
  • Total dividend for the year of 206p, up from the prior year’s pandemic hindered 110p per share
  • Net debt (excluding leases) of £797 million, up £197 million year-over-year

Guidance:

  • Continues to expect full-year sales to fall by 1.5%
  • Continues to expect pre-tax profit of to decline to £795 million

ii round-up:

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

Next Retail operates 466 stores across the UK and Ireland, along with almost 200 stores, mainly franchised outlets, overseas. Stores generated just over a third of sales during this latest year. 

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 29 March, please click here.

ii view:

Tracing its roots back to 1864, the FTSE 100 retailer today employs over 25,000 people and competes with the likes of Marks & Spencer Group (LSE:MKS), ASOS (LSE:ASC) and Boohoo Group (LSE:BOO). Its share of the UK clothing market is estimated to be around 7%. 

Recent challenges in its history have included making a structural shift away from high street retail and towards online selling, trading through the pandemic and battling the cost-of-living squeeze. Now, and while the last of these hurdles is still being overcome, a new division headed by Jeremy Stakol is being formed to focus and push growth initiatives that are already finding some success. 

Focus will include 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; buying or investing in other brands who can then use its Total Platform service; and developing the Next brand overseas. 

For investors, sales and profit over the year ahead are expected to retreat given the cost-of-living crisis now squeezing consumers. Business costs such as energy remain elevated, investments such as automating its warehouses for now remains a drag, while the succession of CEO Lord Wolfson warrants consideration given his importance to the company.

On the upside, plans to generate longer-term growth warrant firm consideration and follow significant investment already made in its online operations, including both warehouses and software used. Costs remain a focus, there's diversification across both product and geographical region, while shareholder returns continue given both a £220 million share buyback programme and a forecast dividend yield in the region of 3%. 

On balance, and while ongoing investor patience is needed given the volatile nature of the shares and difficult economic circumstances, this well-managed company looks to remain deserving of 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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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