ii view: Sales growth tipped to cool at Next

Sales and profit growth guidance are maintained, but investors head for the door.

Third-quarter trading update

• Total full price sales up 2%
• October's full-price sales growth of 5%
• Year to date full price sales up 3.5% on last year
• Full-year full price sales guidance maintained at up 3.6%
• Full-year profit guidance maintained at £725 million (up 0.3% 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. 

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

ii view:

Next represents 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.

For investors, a more than 60% gain in the share price year-to-date injects some near-term caution. Brexit overhangs consumer sentiment and the weather regularly plays its part in influencing demand. The impact of a general election in the middle of the Christmas shopping season also raises question marks. 

Next is clearly well managed and a current winner in a tough sector. But for now, a forward price/earnings (PE) valuation marginally above the 10-year average might suggest that the shares are up with events. 

Positives: 

• Full-year sales and profit guidance maintained
• Diversity of business including a consumer finance business
• Highly regarded CEO 

Negatives:

• Cautious management comments regarding sales for the balance of the year
• Management succession risk
• Factors outside of its control such as the weather can influence performance

The average rating of stock market analysts:

Strong hold