Interactive Investor

Next beats forecasts again as shares near record high

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Experience and skill allow this top retailer to navigate all market conditions. Now is no different.

Next (LSE:NXT) has the uncanny ability to underpromise and overdeliver and this first-quarter update runs true to form.

Full price sales in the year to date have exceeded expectations by £75 million, enabling forecasts for full-year pre-tax profit figure to be raised by £20 million to £720 million. At the last update, the estimate of £670 million was raised to £700 million, so another profit upgrade in such short order is some achievement.

Nor do the improved figures represent a simple shift from stores (which were largely closed for 10 weeks out of the quarter) to online. The situation is rather more nuanced, with strong growth overall in Next-branded Home, third-party sales through LABEL and overseas online sales doing most of the heavy lifting.

Indeed, the figures the company is quoting are compared to two years ago to give a more meaningful comparison with the pre-pandemic environment, which underlines the progress being made in these stronger performing areas.

Even so, the 65% increase in total online full-price sales is not only representative of the company’s ability to react to a changing consumer spending pattern, but also to manage its stock supplies. Given that Retail sales were understandably down by 76% in the period, the overall decrease of 1.5% (versus a previous estimate of a 10% decline) is evidence of a retailer well-placed to weather the economic challenges brought about by the pandemic.

Finance income has also declined by 12% as the consumer has tended to pay by cash rather than relying on credit. The forecast for the full-year is a drop of 8%, although this would tend to suggest a lower level of bad debts even if the economic environment in the UK deteriorates later in the year.

Since the latest easing of lockdown restrictions, Next has seen an increase of 19% in full-price sales over the last three weeks. It is not expected that this release of pent-up demand will continue at these levels, such that the group is maintaining its central guidance.

The share price has reflected Next’s agile performance over an extraordinary period, having risen by 77% over the last year as compared to a gain of 20% for the wider FTSE 100 index. One constant which remains, however, is cracking investor sentiment, where the market consensus of the shares as a 'strong hold' has been in place for some considerable time. If the company continues to defy expectations, upward pressure on the general market view must surely follow.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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