ii view: retailer Next optimistic about 2024

Fourth-quarter trading for the 9 weeks to 30 December

• Full-price sales up 5.6%

Guidance:

• Raised its full-year 2023 pre-tax profit forecast by £20 million to £905 million
• Expects full-year 2024 pre-tax profit of £960 million

ii round-up:

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

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Next Retail operates over 450 stores across the UK and Ireland, along with approximately 200 mainly franchised stores in more than 30 countries overseas. Stores accounted for 37% 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 55% of total sales in its last financial year. 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 4 January, please click here.

ii view:

Tracing its history back to 1864, this FTSE 100 retailer today employs over 25,000 people. Its competitors include Marks & Spencer Group (LSE:MKS), ASOS (LSE:ASC) and Boohoo Group (LSE:BOO). Along with its core retailing business, it also now outsources 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 who can then use its Total Platform service, along with developing the Next brand overseas. 

For investors, the difficult economic backdrop including elevated borrowing costs for its customers cannot be overlooked. Geopolitical tensions and the diversion of shipping away from the Suez Canal may also increase product delivery times from Asia and add to costs. The importance of the weather in potentially hindering sales during the fashion seasons also warrants thought, while the succession of CEO Lord Wolfson deserves consideration given his importance to the company.

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On the upside, Next's mix of own and third-party brands continue to prove popular with consumers, and it continues to focus on costs and shareholder returns. Net debt is also being reduced, diversification of both product and geographical region exists, while 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, adds another significant string to its bow. 

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

Positives: 

• Both product and geographical diversity
• Majority of sales generated online 

Negatives:

• Uncertain economic outlook
• Chief executive considered key in prospects

The average rating of stock market analysts:

Strong hold