Next plc (NXT) Ordinary 10p Shares
110.00p
(1.21%)
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110.00p
(1.21%)
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HL comment (1 May 2024)
Next’s full-price sales were up 5.7% in the first quarter, ahead of guidance for 5.0% growth. Sales were driven by 8.8% growth in its Online channel, with Retail remaining flat.
First-half guidance for 2.5% full-price sales growth has been maintained, implying a drop of 0.3% in the second quarter. This reflects a tough comparative period from late May to June due to particularly warm weather last year. Full-price sales are expected to return to 2.5% growth in quarters three and four.
Full-year total sales and pre-tax profit guidance has also been reiterated. Total sales are expected to increase by 6.0% to £6.2bn, and pre-tax profits are set to rise by 4.6% to £960mn.
The shares fell 2% in early trading.
Our view
Next continued its momentum into the first quarter with an upbeat trading statement. Despite wet and cold weather across much of the period, it still managed to beat its full-price sales guidance for the period.
The Online division continues to be the main driver of growth, with sales through this channel rising by 8.8%. Last time we heard, this division accounted for more than 54% of group sales, and we're pleased to see that increased warehouse space and operational tweaks are helping to iron out some of the problems of the past. There's still some work to be done, but we’re encouraged by the planned infrastructure improvements and cost savings they should bring over time.
The online focus has helped Next grow its brand in overseas markets too. Sales abroad were up 17% last year, with net margins improving by 4.4 percentage points to 13%. It's still a relatively small slice of the pie at the moment, but Next is eager to seize the growth opportunity. Although, nothing is guaranteed.
Next still has a strong high street presence though, which is holding up well. Its shops typically have shorter, more favourable leases than peers, and are more focussed on out-of-town retail outlets that have fared better. That gives extra flexibility and should allow it to make the best of tougher conditions if they arrive.
Remarks from the typically conservative CEO Lord Simon Wolfson were decidedly upbeat back in March, as real wage growth and falling prices are expected to spur on momentum into 2024. That’s led Next to forecast pre-tax profit growth of 4.6% this year, driven by both sales increases and ongoing cost savings. But it's important not to get too carried away. Although the economic headwinds may be easing, there is still a lot of uncertainty out there.
The last update showed the balance sheet was in good shape, with debt levels trending in the right direction. The group plans to return around £546mn back to shareholders through dividends and share buybacks in the upcoming 2024/25 financial year. And despite the FatFace acquisition, market forecasts suggest these are currently covered by cashflows, but no shareholder returns are guaranteed.
Next's always been a top dog in the retail industry, but it's a tough sector to be in during times of economic uncertainty. It's weathering the storm admirably and looks well-placed to benefit from the improving outlook. That's reflected in a valuation just above its long-term average, but further ups and downs could be in store along the way.
Next key facts
Forward price/earnings ratio (next 12 months): 14.6
Ten year average forward price/earnings ratio: 13.8
Prospective dividend yield (next 12 months): 2.5%
Ten year average prospective dividend yield: 3.5%
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
A director of Hargreaves Lansdown plc is a Non-Executive Director of Next plc.
Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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