Next is bullish, but what about the share price?

After opening 1.4% higher, Next shares quickly fell back. Our head of markets explains why.

As many retailers bemoan the current trading environment and struggle accordingly, Next (LSE:NXT) continues its strong march ahead.

Another concern around the sector is the extent to which Black Friday sales may simply have brought forward transactions which would have happened anyway during the festive period. Again, Next has no such concerns, with full-price sales – including a boost from items bought on credit in the form of interest income – rising 5.2% year-on-year. 

Indeed, the outperformance has exceeded the company’s own expectations, and the resulting profit upgrade is a welcome development. 

Expected full-price sales growth is expected to be nearly 4%, the earnings per share guidance has been increased by around 5%, and the profit number likely to hit £727 million from the previously guided £725 million. 

Meanwhile, the long-standing jewel in the crown that is the online business has surged ahead yet again, with year-to-date full-price sales ahead by 12.1%, an important contributor where online and retail sales are roughly equally split across the business.

Source: TradingView Past performance is not a guide to future performance

One fly in the ointment around the numbers is retail’s contribution, which has dipped 4.6% in terms of sales in the year to date, while changes to Corporation Tax payments means that the company will need to factor in a (manageable) £70 million hit. 

This will have the effect of increasing net debt in the shorter term, although the company’s hard-earned reputation for careful balance sheet management will likely see it through without drama.

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Indeed, Next’s prodigious cash generation will also result in a further return to shareholders which, depending on the level of the share price, will either come in the form of a share buyback programme or as a special dividend. 

In either event, it will represent proof of a business with its finger on the pulse. Further out, the company has also issued some reassuring words, promising to maintain the growth momentum.

In some ways, these promises will need to be delivered, since Next is a business always accompanied, and sometimes hampered, by high expectations. 

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For the moment, the garden is rosy, with the shares having risen 67% over the last year, as compared to a 13.6% hike for the wider FTSE 100 index, and 28% in the last six months alone. 

While the trading multiple is not a particular concern at present, given this price surge the bar will remain high for the company and it is perhaps, therefore, of little surprise that the shares are generally seen as up with events, with the market consensus coming in at a “hold”.

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.