ii view: Next finds more space in its online wardrobe

Second-quarter trading update to 29 July

• Full-price sales up 6.9%

Guidance:

• Raised its full-year pre-tax profit forecast by £10 million to £845 million

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ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products under both its own and other third-party brands. 

Next Retail operates more than 450 stores across the UK and Ireland, along with approximately 200 stores, mainly franchised outlets, in more than 30 countries overseas. Stores accounted for just over a third of sales during its last financial year. 

Next Online has around 7 million UK customers and around 1.6 million overseas customers. Selling both Next and third-party branded products, it generated just under three-fifths of total 2022 sales. Its Finance business, providing over £1 billion in credit, generated most of the balance. 

For a round-up of this latest trading update announced on 3 August, please click here.

ii view:

This FTSE 100 retailer today employs more than 25,000 people. Last year, and competing against rivals such as Marks & Spencer (LSE:MKS), ASOS (LSE:ASC) and Boohoo Group (LSE:BOO), it generated sales of over £5 billion. 

Outside its core retailing business, it is now outsourcing its online operations to third parties such as GAP and Laura Ashley via its ‘Total Platform’ service. Other initiatives include buying or investing in other brands, which can then use its Total Platform service, along with developing the Next brand overseas. 

For investors, the challenging economic backdrop, including higher borrowing and rental costs for customers, cannot be ignored. The importance of the weather in potentially hindering sales also warrants consideration. Rivals such as Marks and Spencer are not standing still, while the succession of CEO Lord Wolfson deserves thought given his importance to the company.

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On the upside, the sale of third-party brands via its website and the effective outsourcing of its now well-honed online platform, including both warehouses and software used, warrants consideration. A focus on costs and shareholder returns persists, diversification of both product and geographical region is present, while the group’s sales and profits often exceed management’s now almost customary caution.   

In all, and while some caution is still sensible, this well-managed retailer looks to remain deserving of its place in many diversified investor portfolios. 

Positives: 

• Both product and geographical diversity
• Most sales generated online 

Negatives:

• Uncertain economic outlook
• Chief executive considered key in prospects

The average rating of stock market analysts:

Strong hold