Next outlet in Lincoln
Next CEO Simon Wolfson said it has been ‘a long time since we started a year in a more positive frame of mind’ / Image source: Adobe
  • Record profits delivered
  • FY25 guidance reiterated
  • Overseas developments excite

Shares in Next (NXT) rallied 5.4% to an all-time high of £89.66 on Thursday after the fashion and homeware retailer reported forecast-beating results for the year to January 2024 and reiterated its full year 2025 guidance.

Investors’ spirits were buoyed by comments from chief executive Simon Wolfson, described as a ‘retail oracle’ by Shore Capital, who said it has been ‘a long time since we started a year in a more positive frame of mind’ and senses his charge is now ‘entering a new era’.

There was also good news for shoppers struggling with cost-of-living pressures as Next anticipates a small reduction in selling prices this year due to falls in the cost of goods from suppliers.

ANOTHER GOOD YEAR

Next delivered a 5% increase in pre-tax profit to a record £918 million for the year to January 2024, slightly above the £915 million guidance given in January and driven largely by better-than-expected stock clearance performance.

Full price sales rose 4%, signaling strong consumer demand for Next’s products, with growth driven by a strong online performance, where full price sales increased by 6% versus a more modest 0.2% increase in retail stores.

INTERNATIONAL OPPORTUNITY EXCITES

With inflationary pressures easing and fears of a hard economic landing receding, Next is looking forward to the year ahead with confidence.

The master of market guidance maintained its year-to-January-2025 guidance for 2.5% full price sales growth and a 4.6% increase in pre-tax profits to £960 million.

Next, which intends to pay out £540 million in dividends and share buybacks this year, has also been making good progress internationally.

Following an encouraging trial, it is actively working with US multi-channel retailer Nordstrom (JWN:NYSE), has agreed terms with a second major US retailer and is in active discussions with several others.

In addition, the FTSE 100 company is close to finalising a franchising and licensing agreement for Next in India and is in very early-stage conversations for similar arrangements in other Asian territories.

EXPERT VIEWS

Russ Mould, investment director at AJ Bell, noted that a key tenet of Wolfson’s tenure at the helm of Next has been a bias towards under-promising and over-delivering.

‘It is striking therefore to see Wolfson be so openly positive about the prospects for the year ahead,’ explained Mould.

‘The company is sticking to its guidance for the year to January 2025 as cost pressures ease, to the extent Next believes it may be able to reduce prices in store, and the clouds begin to part for consumers.’

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Mould added: ‘Next gets the basics of retail right - getting the right products to the right customers in the right place.

‘It offers next-day delivery options online and its physical stores provide a useful support role as a hub for web-based sales. It is so good at these fundamentals it now offers its services to third parties through its Total Platform. This, plus prudent steps to expand the brand and operation overseas, offer other growth levers which Next can pull.’

Begbies Traynor’s (BEG:AIM) Julie Palmer said Next’s strategy of buying ‘on-the-rocks retailers like Joules and Cath Kidson is clearly working and the fact it is managing to improve sales figures both online and at bricks-and-mortar stores is no mean feat.’

Palmer observed that Next will be ‘acutely aware’ of the uncertainty looming over the sector, but with its ‘cost base under control and yesterday’s news that inflation is at its lowest level in two years, the company is right to be bullish. And, if the Bank of England commences interest rate reductions in the summer and we see a return of consumer confidence, 2024 could be another very impressive year for one of the UK’s retail success stories.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 21 Mar 2024