Next results reaffirm resilience and openness

Next is often an unsung hero among investors, but these results again show the resilience and the openness in the way the company operates.

Article updated: 1 April 2021 10:00am Author: Richard Hunter

Previously detailed guidance means that there are few surprises in the update from Next. Pre-tax profit is exactly as predicted by the company, with the figure of £342 million comparing with £729 million the previous year. Net debt has also reduced significantly to £610 million from £1.1 billion, slightly better than the formerly estimated £625 million. Full price sales overall dropped by 15% and total sales by 17% as expected, with the company’s previous assumption of full store closures for the whole of February and March having been vindicated.

Meanwhile, an additional spend of £121 million during the period on systems and warehousing enabled support for the burgeoning online channel, where full price sales increased by 13% and with a notable increase in cash rather than credit payments from customers, thus keeping a lid on potential defaults.

Online and finance now account for over 70% of overall sales, and in the first eight weeks of its new financial year next has reported that online sales are 60% ahead of the figure from two years ago. The company concedes that it is difficult to predict how much of the change in consumer behaviour to online will stick post-pandemic, although the possibility remains that the new behaviour will have become largely entrenched.

It is therefore also keeping a close eye on its retail estate, ensuring that it is appropriate for the overall direction of the group. Over the last year city centre and shopping mall volumes dropped significantly – and unsurprisingly – and were partially offset by retail park revenues where social distancing was easier to introduce when stores were allowed to open.

In terms of outlook, the surge in online sales has resulted in a profit upgrade for the new year to £700 million from a previous £670 million, while overseas and LABEL sales are also showing signs of increasing strength. At the same time, a partial return to the workplace and the renewed ability to socialise could lead to many a refreshed wardrobe.

Next’s decision not to pay a dividend for the period and to maintain the suspension of buybacks may come as a disappointment to some investors. The company remains committed to reviewing the situation when visibility improves, and the decision may yet turn out to be prudent if a wave of unemployment and subdued consumer sentiment results from the removal of government aid later this year.

The sharp decline in the share price as the initial full lockdown kicked in flatters the recent performance, with the shares having surged 93% over the last year as compared to a rise of 23% for the wider FTSE100. Even so, the direction of travel has been restored and by way of comparison the shares are up by 41% over the last two years.

Next has attracted high expectations for some considerable time and regardless of its performance and progress, the market remains a tough nut to crack. Although the financial resilience of the company has been demonstrated during an extraordinary time and despite an upbeat outlook, the general view of the shares as no more than a strong hold is likely to remain intact.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.