ii view: retail giant Next is back firing on all cylinders

Upgrading its profit estimate for a fourth time, we assess prospects for this £10 billion-plus retailer. 

First-half results to 31 July 2021

• Revenue up 5.2% to £2.12 billion compared to H1 2019
• Pre-tax profit up 5.9% to £347 million compared to H1 2019
• Full price sales in the last eight weeks were up 20% versus 2019

Guidance:

• Expects full price sales to rise by 10% compared with two years ago 
• Expects full-year pre-tax profit of £800 million, up from a previous estimate of £764 million

ii round-up:

Next (LSE:NXT) is a retailer of clothing and homeware products under both its own brand and almost 1,000 third-party brands.  

Next Online, generating two-thirds of group sales in 2020, has around 5 million UK active customers and websites serving over 70 countries. Online overseas customers total approximately 1.5 million. 

Next Retail operates around 500 stores across the UK and Ireland and accounted for just over a quarter of 2020 sales. 

Its Finance business, providing over £1 billion in credit, generated most of the remaining sales, with its overseas largely franchised stores the balance. 

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

ii view:

Next is a highly regarded retailer both on and off the high street. Being 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. It competes with the likes of Marks & Spencer (LSE:MKS), H&M and Boohoo (LSE:BOO). 

For investors, ongoing pandemic uncertainty and broader supply chain issues should not be forgotten. Government stretched finances following the Covid crisis may potentially lead to higher taxes, while chief executive Lord Wolfson appears to remain central to the company’s prospects.

But these latest results again beat forecasts, and strong sales at the start of the second half offer optimism. Online sales remain buoyant, too, and near normality has returned to its store outlets. The reduction of net debt is a focus, the payment of a special dividend has not long been received by entitled shareholders, while a further special dividend for this financial year remains dependent on the level of surplus cash generated. In all, and while the current valuation suggests the shares are fairly priced, fans of Next will likely remain optimistic about long-term prospects.

Positives: 

• Both product and geographical diversity
• Continued growth in online sales 

Negatives:

• No dividend guidance
• Chief executive considered key in prospects

The average rating of stock market analysts:

Buy