ii view: Next proves a festive winner

Shares in this high street bellwether are down by more than 15% over the last year, but have done much better in recent months. We assess prospects. 

Trading update for the nine weeks to 30 December

• Full-price sales up 4.8%

Guidance:

• Expects current full-year profit to the end of January 2023 of £860 million, up from a previous £840 million
• Expects sales for the year ahead to the end of January 2024 to fall 1.5% and profit of £795 million
• Expects share buybacks of £220 million for the year ahead

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products under both its own brand and those of third parties. 

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Next Retail operates around 500 stores across the UK and Ireland, along with almost 200 stores, mainly franchised outlets, overseas. Stores generated around a third of sales during 2021. 

Next Online has over 6 million UK customers and around 1.9 million overseas customers. Selling both Next and third-party branded products, it generated just over three-fifths of total 2021 sales. Its Finance business, providing over £1 billion in credit, generated most of the balance. 

For a round-up of this latest trading update announced on 5 January, please click here.

ii view:

Tracing its roots back to 1864, the retailer was founded as J Hepworth & Son, a gentlemen’s tailors in Leeds. Today, and headquartered in Leicester, the FTSE 100 retailer 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%. 

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For investors, the challenging economic outlook, including a cost-of-living crisis and rising interest rates, offers a tough backdrop. Management’s forecast for sales and profit for the year ahead point toward declines. Group costs like energy and wages offer headwinds, while the succession of CEO Lord Wolfson warrants consideration given his importance to the company.

On the upside, sales over this latest trading period, and against the backdrop of elevated consumer energy prices, have proved more robust than management had expected. It's why the company reinstated its previous estimate of full-year profit. Costs remain a focus, the diversification of its products to include third-party brands continues to aid sales, and shareholder returns remain a focus given a £220 million share buyback programme and estimated future dividend yield of 3%. 

For now, and while investor patience will likely be required, this well-managed company looks 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