ii view: Next set on expanding overseas empire

First-half results to 31 July

• Revenue up 13.6% to £2.86 billion
• Pre-tax profit up 7.1% to £452 million
• Interim dividend up 13.6% to 75p per share

Guidance:

• Expects full-year full price sales to grow by 4%, up from a previous 2.5%
• Expects full-year pre-tax profit of £995 million, up from a previous range of £960 million to £980 million
• Expects full-year share buybacks of around £306 million
• Expects net debt to reduce by £75 million to £625 million

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products, selling both its own and other third-party branded goods.

The Next Online business is expected to generate 54% of overall revenues this financial year, with own branded sales at 23%, non-branded 17% and overseas sales 14%.

The Next Retail or store business is expected to account for a further 30% of sales. The balance will come from the Consumer Credit or Finance business at around 6% and the relatively new ‘Total Platform and Investment business, where it invests in and outsources the use of its online operations to others, at around 10%.  

For a round-up of these latest results announced on 19 September, please click here.

ii view:

Coming to the stock market in 2002, Next today competes against rivals such as Marks & Spencer Group (LSE:MKS), ASOS (LSE:ASC) and Boohoo Group (LSE:BOO). A constituent of the FTSE 100 index, it employs over 30,000 people. Investments made in and users of its Total Platform business include Reiss, Fat Face and Joules. Management focus now includes expanding its overseas sales, developing new brands and growing the Investment and Total Platform business.  

For investors, elevated borrowing costs and high prices are continuing to squeeze consumers both in the UK and overseas. The significance of the weather in potentially impacting sales should not be forgotten. Environmental concerns given the resources required to manufacture new clothing such as water, warrant consideration. So does the succession of CEO Lord Wolfson given his importance to the retailer. 

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More favourably, full price overseas sales including those to India, Europe and the Americas grew by 23% during this latest period to £433 million. Profit from investments and Total Platform services climbed to £23.5 million from £8 million in H1 2023. Group investment in stores, technology and warehouses is ongoing, while its focus on shareholder returns includes a forecast dividend yield in the region of 2.2%. 

In all, a share price close to the consensus analyst fair value estimate at around £98 per share may suggest the shares are up with events. That said, and with Next now targeting other areas of potential growth such as overseas sales, this well-managed retailer clearly has long-term potential.   

Positives: 

• Product and channel diversity
• Majority of sales and profits generated online 

Negatives:

• Uncertain economic outlook
• Chief executive considered key in prospects

The average rating of stock market analysts:

Hold