ii view: Next reveals online profit surprise

There's no dividend but 2022 profit estimates have been upgraded. Buy, sell or hold?

Full-year results to 30 January

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products under both its own and almost 1,000 third-party brands.  

Next Online, generating two-thirds of group 2020 sales, has around 5 million UK active customers and websites serving over 70 countries. Online overseas customers total approximately 1.5 million. 

Accounting for just over a quarter of 2020 sales, Next Retail operates around 500 stores across the UK and Ireland.

Next Finance provides over £1 billion of consumer credit to enable customers to shop and during 2020 generated around 7% of total sales. 

The company also operates around 180 mainly franchised stores overseas in 31 countries, which added a further 1% to group 2020 sales. 

For a round-up of these latest full-year results, please click here.

ii view:

Next is a highly regarded retailer both on and off the high street. The company was 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. 

As with businesses far and wide, 2020-21 was a year like no other. Store sales over the year almost halved under virus lockdown closures. But a strong and established position for its online business provided for a 10% increase in online sales to over £2.3 billion. As such, total overall sales fell by less than a fifth to just over £3.6 billion. Profit for its online business grew by around 18% to £472 million, partially offsetting losses for its high street retail business. 

For investors, ongoing Covid uncertainty cannot be ignored. The dividend and share buybacks also remain halted under group outlook caution, while an estimated price/earnings ratio sitting marginally above the retail sector average suggests the shares are not obviously cheap. 

That said, management's customary caution is again evident, with a previous forecast for profit over the year ahead being upgraded. Momentum for online sales remains impressive while occupancy costs for its store outlets are falling. Net debt, both including and excluding group leases, has fallen and a return to dividend payments is highly possible if somewhat dependent on the trajectory of the pandemic. For now, while Next shares look up with events, long term fans are likely to remain supportive.

Positives: 

• Both product and geographical diversity
• Continued growth in online sales 

Negatives:

• Shareholder returns suspended
• Chief executive considered key in prospects

The average rating of stock market analysts:

Strong hold