ii view: Next's overseas sales impress

Nine-week trading update to 28 December

• Full-price sales up 6%
• Total online UK sales up 6.1%
• UK store sales down 2.1%
• Total online overseas sales up 31.4%

Guidance for FY to 31 January

• Now expects full-year full price sales to grow by 5.5%, up from a previous 4.9%
• Now expects full-year pre-tax profit of £1.010 billion, up from a previous £1.005 billion
• Expects full-year share buybacks of around £326 million, up from a previous £306 million
• Continues to expect 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 to late January, 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 this latest trading update announced on 7 January, please click here.

ii view:

Floating on the stock market in 2002, Next today competes against rivals including Marks & Spencer Group (LSE:MKS), ASOS (LSE:ASC), Associated British Foods (LSE:ABF) owned Primark 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 expansion of overseas sales, developing new brands and growing the Investment and Total Platform business.  

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For investors, UK government Budget changes are expected to increase wage costs. Sales of the group’s UK store portfolio retreated 2.1% during the period. The significance of the weather in potentially impacting demand cannot be forgotten, while the eventual succession of CEO Lord Wolfson deserves thought given his importance to the company. 

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On the upside, growth in online overseas sales, including those to India, Europe and the Americas, accelerated to 31.4% during this latest period, up from 20.4% in Q3. A focus on costs is expected to see rising wage costs mitigated by reductions elsewhere, aiding management’s forecast 3.6% growth in pre-tax profits of £1.046 billion for the year to late January 2026. Group investment in stores, technology and warehouses is ongoing, while its focus on shareholder returns includes a forecast dividend yield in the region of 2.4%. 

In all, and while the tough backdrop for consumers cannot be forgotten, online growth both in the UK and overseas is likely to help maintain support for this well-managed retailer.

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:

Strong hold