Interactive Investor

Next shares briefly hit record high after great results

29th September 2021 08:15

Richard Hunter from interactive investor

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Next has exceeded expectations in a great first half of 2021, and it's on track for a bumper year. Our head of markets brings us up to speed.

Historically, Next (LSE:NXT) has had the habit of cautious projections being followed by far superior results, and these numbers are no exception.

The company has raised its full-year profit guidance for the fourth time this year, and the new pre-tax profit estimate of £800 million for the full year compares to a figure of £750 million at the July trading update. The expected reduction in online sales as stores reopened across the country has not yet meaningfully materialised, while full-price sales have turbocharged numbers against a backdrop of pent-up demand.

In addition, the consumer has had more cash on the hip, with higher savings ratios during the pandemic and fewer overseas holidays since being major contributors. The breadth of the Next offering, underpinned by the growing success of its third party LABEL offerings, has also meant that even with lower levels of stock, there is ample choice for the consumer to consider similar product alternatives.

These factors have propelled the results beyond expectations, with full-price sales ahead of the 2019 comparative by 8.8% (and by 62% against 2020) and pre-tax profit importantly ahead of the pre-pandemic level by 5.9%. Alongside this growth, there has been a sharp reduction in net debt which is expected to continue without affecting the company’s ongoing investment in the business, such as the £100 million being spent this year on marketing the online offering.

Inevitably, Next is at pains to point out that challenges remain. The longer term issue of whether heightened pandemic online sales are here to stay is as yet unknown. The wider issue of cost inflation could also impact margins, while the group is also experiencing the difficulties arising from supply chain blockages in terms of stock, with staff shortages running into the peak season also a possibility.

Even so, trading since these half-year numbers, which run to the end of July, has continued to explode, with full-price sales 20% ahead of 2019 levels and significantly in excess of the 6% previously guided.

Next is a tightly run ship which is able to respond to a fluid trading environment both in terms of evolving fashion trends as well as financial challenges. The company is not only exceeding pre-pandemic levels of trading, but has also demonstrated that the measures it has taken in the interim leave it strongly placed to benefit from the new environment.

The shares have also responded, having risen by 34% over the last year, as compared to a gain of 19% for the wider FTSE100. They made a record high of 8,408p in early deals Wednesday before easing back. Equally noticeable is that after years of investors taking a neutral view on the stock, the potential for Next’s strategy is now being taken on board. The market consensus has at last improved to a 'buy' on this renewed optimism on prospects.

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.

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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