ii view: retailer Next is really sweating its online business

Full-year results to 31 January

• Revenue up 5.9% to £5.8 billion
• Pre-tax profit up 5% to £918 million
• Final dividend of 141p per share
• Total 2023 dividend up 0.5% to 207p per share
• Net debt down 12% to £700 million

Guidance:

• Expects pre-tax profit to rise by around 4.6% to £960 million
• Planning share buybacks of around £288 million for the year ahead, up from a previous £275 million

Chairman Michael Roney said:

“In the last year we have focused on improving our product ranges, improving our online service levels, managing costs and profitability, whilst also laying the foundations for future growth businesses. 

“We launched three new Total Platform clients (JoJo Maman Bébé, Joules and MADE),
taking our total number of clients to seven. We also made a number of new investments, increasing our equity stake in Reiss by 21% to 72% and taking a 97% equity stake in FatFace. We also acquired 100% of the intellectual property in Cath Kidston.”

• Invest with ii: Open a Stocks & Shares ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

ii round-up:

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

Next Retail operates over 450 stores across the UK and Ireland, along with approximately 200 mainly franchised outlets in more than 30 countries overseas. Stores accounted for 32% of sales during this latest financial year. 

Next Online has around 7 million UK customers and over 1.5 million overseas customers. Selling both Next and third-party branded products, it generated 54% of total sales during this latest financial year. 

Next's Finance business, providing £1.5 billion in credit, generated a further 5%, with returns from its investments in other businesses and its relatively new ‘Total Platform’ outsourcing of its online operations accounting for most of the 9% balance.  

For a round-up of these latest results announced on 21 March, 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 25,000 people. As well as its core retail business, it also now outsources its extensive online operations to third parties such as Reiss, Fat Face and Joules via its ‘Total Platform’ service, along with investing in these businesses. 

For investors, the tough economic backdrop given elevated borrowing costs pressuring disposal consumer spending should not be forgotten. Geopolitical tensions and the diversion of shipping away from the Suez Canal is now lengthening delivery times and raising freight costs. The significance of the weather in potentially hindering sales also warrants consideration, as does the eventual succession of CEO Lord Wolfson given his importance to the retailer.

• What does WH Smith tell us about health of UK high street?
• 12 UK stocks make this list of buy ideas
• The UK stocks just as good as America’s Magnificent Seven

On the upside, the expansion of Next's Total Platform service is expected to help fuel profit growth, and overseas sales rose by 17% during this latest year. Its mix of own and third-party brands continues to prove popular with consumers, group net debt is being reduced, while its focus on shareholder returns includes a forecast dividend yield in the region of 2.5%. 

On balance, and despite ongoing risks, this well managed retailer appears to remain deserving of its place in diversified investor portfolios. 

Positives: 

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

Negatives:

• Uncertain economic outlook
• Chief executive considered key to prospects

The average rating of stock market analysts:

Hold