Shares in high street retailer Next (NXT) rallied 3% to £80.97 on Thursday after the clothing and homewares colossus unexpectedly raised its central profit guidance for the year to January 2022 by £30 million to £700 million on the back of continued online outperformance.
Over the first eight weeks of the new financial year, Next’s online sales have proved stronger than expected and are up more than 60% on two years ago.
As the retail sector star turn explained: ‘This overachievement plus the expected transfer of sales from retail during the additional two weeks of lockdown, are expected to add £30 million of profit. As a result, we are raising our central profit guidance by £30 million from £670 million to £700 million.’
CLEAR RETAIL WINNER
Next has lost brick and mortar sales due to Covid restrictions, but the UK’s number one online clothing retailer has cushioned the blow of lockdowns by leveraging its best-in-class digital operations while extending its online platform to host smaller brands.
Despite most of Next’s physical stores being shuttered for a significant portion of the year to Jnauary 2021, total group sales fell by less than 17% to £3.6 billion as the clear retail winner’s online business shielded it from the worst of the Covid crisis.
Pre-tax profit more than halved from £729 million to £342 million, a credible result considering the damage the pandemic has done to the wider sector and in line with the central guidance issued in its January 2021 trading statement.
Though net debt was reduced by £502 million during the year, from £1.1 billion to £610 million, Next prudently passed the final dividend for 2020/21 and said its share buyback programme remains suspended due to the ‘continuing uncertainty’ around when stores will reopen, though the FTSE 100 retailer remains ‘committed to returning capital to shareholders in the long term’.
THE EXPERTS’ TAKE
AJ Bell investment director Russ Mould said Next’s ability to respond to the pandemic ‘has been impressive and is reflected in its continuing profitability, with profit notably expected to return to roughly pre-Covid levels in the current financial year.
‘This will increase anticipation that the company will resume dividends - a move it is resisting for now - sooner rather than later.
‘Next is also aware of the need to retain newly won online customers in the under-20s and over-60s age groups. Supporting its ability to do so is a willingness to change in order to cater to customer tastes by, for example, carrying third-party brands on its site and apps.’
Liberum Capital reiterated its ‘buy’ rating on Next, pointing out the retailer is ‘now predominantly an online business with stores still being key to its success. We remain positive about further online growth as Next attracts new brands and develops the Platform Plus, Total Platform and licensing models.
‘Retail profitability will be supported by the ongoing rent renegotiations and potential rates reform, while the finance income is underpinned by a quality debtors book.’
