ii view: Next stays confident in online growth prospects

Shares for this major retailer are down by more than a quarter year-to-date. We assess prospects. 

Second-quarter trading update to 30 July

• Full price sales up 5% versus last year

Guidance: 

• Full-year profit guidance increased by £10 million to £860 million (+4.5% versus last year)

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ii round-up:

Next (LSE:NXT),  a retailer of clothing and homeware products under both its own and other third-party brands, competes with the likes of Marks & Spencer (LSE:MKS), ASOS (LSE:ASC) and Boohoo (LSE:BOO). 

Next Online, generating just over three-fifths of overall 2021 sales, has more than six million UK customers and around 1.9 million overseas customers.  

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. 

Finally, its Finance business, providing over £1 billion in credit, generates most of the remaining sales. 

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

ii view:

Next was quick to spot the trend towards online sales. Its online business has grown to offer both the convenience of ordering online and, if necessary, collecting and returning via its store network. Headquartered in Leicester, it employs more than 25,000 people. 

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For investors, rising costs generally continue to warrant consideration. A cocktail of outlook uncertainties including a cost-of-living crisis for consumers and rising interest rates need to be remembered. As does the closure of selling websites in Russia and Ukraine and future chief executive succession given the importance of Lord Wolfson to the company. 

On the upside, and despite the muddying impact of the pandemic, longer-term growth for its core online business continues. Competition on the high street, thanks to the Covid crisis, has been reduced, while cash generation currently underpins both a share buyback programme and an estimated future dividend yield of over 3%. In all, and with the consensus analyst estimate of fair value currently standing at over £70 per share, room for longer-term optimism looks to persist. 

Positives: 

• Both product and geographical diversity
• Most sales generated online 

Negatives:

• Tough outlook for consumers
• Chief executive considered key in prospects

The average rating of stock market analysts:

Buy