ii view: Next raises its profit estimate

Shares are up more than 60% over the last year alone, but is all the good news now in the price?

Fourth-quarter trading update

• Full-year profit guidance increased by £2 million to £727 million
• Total full price sales up 5.2%
• Year to date, full price sales up 3.9% on last year

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware. 

Next Online, generating nearly half of group profit, has over 5 million active customers globally and websites serving over 70 countries. 

Accounting for around one third of profits, Next Retail operates around 500 stores across the UK and Ireland. Its outlets complement the online business - nearly half of UK Online orders are fulfilled through the store network. 

Next Finance, generating around one sixth of profits, currently provides £1.2 billion of consumer credit to enable customers to shop. 

The company also operates around 200 mainly franchised stores overseas in 35 countries.

For a round-up of this fourth-quarter trading update, please click here.

ii view:

Next is a highly-regarded retailer both on and off the high street. Management were quick to spot the trend towards online sales. Its Directory business has grown to offer both the convenience of ordering online and, if necessary, collecting and returning via its store network.

Last year, revenues from online sales overtook those of its physical estate, and results for the six months to July showed online sales topping £1 billion at the half-year stage for the first time. In this latest quarter, online sales rose by 15.3% while high street or retail sales fell by 3.9%. 

For investors, a 60%-plus gain in the share price over the last year raises some caution, while the weather regularly plays its part in influencing customer demand. However, Next is clearly well managed and a current winner in a tough retail sector. But, for now, a forward price/earnings (PE) ratio above both the three and 10-year averages might suggest the shares are up with events.

Positives: 

• Diversity of business including a consumer finance business
• Returning surplus cash to shareholders
• Highly-regarded CEO 

Negatives:

• Management succession risk
• Factors outside of its control such as the weather can influence performance
• Group net debt rose 2.5% from late January 2019 to £2.52 billion as of 27 July 2019

The average rating of stock market analysts:

Hold