ii view: Next shares in demand

Covid is hurting but online and out-of-town store locations have helped it battle the pandemic.

First-half results to 31 July

• Revenues down 34% to £1.36 billion
• Pre-tax profit down 97% to £9 million
• Net debt (excluding leases) down 36% to £765 million
• No dividend payment

Guidance:

• Expects full-year pre-tax profit of £300 million, up from a July estimate of £195 million

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homewares. 

Next Online, generating over half of group 2019 profit, has around 5 million UK active customers and websites serving over 70 countries. 

Accounting for around a quarter of 2019 profits, Next Retail operates around 500 stores across the UK and Ireland. 

Next Finance provides over £1 billion of consumer credit to enable customers to shop and last year generated approximately a fifth of total profit. 

The company also operates around 180 mainly franchised stores overseas in 31 countries.

For a round-up of these latest first-half results, please click here.

ii view:

Next represents a highly regarded retailer both on and off the high street, and management were quick to spot the trend towards online sales. Its Directory business has grown to offer both the convenience of ordering online and, if necessary, collecting and returning via its store network. Nearly half of UK online orders are collected in store and over 80% of returns made via stores.

Clearly, Covid-19 has had a significant impact. Full-price sales are down by a third in the period, but the size of its online business has served it well, while the locating of most of its stores out-of-town has given its customers confidence to shop again even under pandemic conditions. Added to management’s now customary cautious guidance, and these results have again seen the retailer upgrading its full-year profit estimate from an expected loss first outlined back in April. 

For investors, outlook uncertainty caused by the pandemic clearly warrants ongoing caution. The suspension of shareholder returns comes in the wake of Next paying special dividends on top of normal dividends only back in 2017/18. But the broader trend of Covid-19 is arguably to accelerate the move towards online sales, a situation Next continues to look well placed for.  

Positives: 

• Both product and geographical diversity
• Highly regarded CEO 

Negatives:

• Expects full price sales for the rest of the year to be down 12%
• Shareholder returns suspended

The average rating of stock market analysts:

Hold