Interactive Investor

Next does better than expected in Q1 

Shares are on a roll and still not far from record levels following this first-quarter update. ii's head of markets studies the numbers and reports on action from stock markets around the world.

1st May 2024 08:27

by Richard Hunter from interactive investor

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    Although its first-quarter trading statement was brief, Next (LSE:NXT) announced a sprightly start to the year while also maintaining its guidance.

    More recently the group has leaned towards full-price sales at the expense of discounts, and the strategy has paid off, with the company previously noting that there is an increasing proportion of customers who are buying fewer, but more expensive items. This potentially brings new opportunities for Next slightly higher up the price chain.

    In the 13 weeks to 27 April, full-price sales increased by 5.7%, as compared to the company’s previous guidance of 5%. The number was underpinned by a particularly strong contribution from its online arm, which contributes some 54% to overall sales, with growth of 8.8%.

    At the same time, Next maintained its guidance for the forthcoming year, including a rise of 4.6% in pre-tax profit to £960 million, total group sales growth of 6% and full-price sales to rise by 2.5%. This will incorporate a predicted weaker decline in the second quarter of 0.3% as the number comes up against strong comparatives.

    While not mentioned in this statement, the company will be working hard on the three major strands of its growth in the background, which relate to its Total Platform, new brands and licences and Next overseas, all of which are showing signs of opening avenues to which the group was not previously exposed. 

    In the meantime, the shares are certainly on a roll given Next’s recent ability to continually confound expectations, having risen by 34% over the last year, as compared to a gain of 4.8% for the wider FTSE100.

    The rise has also brought the price in line with its historical average in terms of valuation, which has resulted in something of a stalemate in terms of the market consensus. It would appear that however enticing Next’s prospects might be, there is some agreement that the share price is up with events for now, such that the general view of the shares remains at a 'hold'.

    Market snapshot

    US investors will be glad to see the back of a poor April, with each of the main indices losing more than 4% and with losses accelerating into the close as traders squared positions for the month.

    The latest catalyst for concern was a report showing a rise of 1.2% in wages and benefits against an expected 1%, fuelling renewed fears of upward pressure on inflation at a time when investors had previously been pinning their hopes of several interest rate cuts this year. While the Federal Reserve’s decision later today will almost certainly be to leave rates unchanged, its outlook comments could be price-moving set against the backdrop of a consistently resilient economy. 

    Meanwhile, a rare highlight for the day came as Inc (NASDAQ:AMZN) reported a strong set of numbers which beat expectations, with a notable contribution from its cloud computing unit, sending the shares more than 5% higher in after-hours trading.

    Even so, the news came too late to prevent the day’s losses, which in turn shaved the cumulative performances of the main indices. The benchmark S&P500 is now ahead by 5.6% so far this year and the Nasdaq by 4.3%, while the Dow Jones more recent weakness has left the index up by just 0.3%.

    Given the recent jitters emanating from the other side of the pond, there is some increasing evidence that international investors are seeking alternatives, such as markets containing cheap, cyclical value stocks. This has seemingly led to a revival of interest in the FTSE100, which has been pushing through record highs over recent trading sessions and where the index has now added 5.5% in the year to date, outstripping both the Nasdaq and the Dow Jones.

    The possibility of Merger & Acquisition activity is adding further froth, given the likelihood that there are foreign suitors continuing to run their slide rule over a raft of relatively undervalued companies which can be found in the UK.

    These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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