19th Sep 2024 19:31
(Alliance News) - Shares in Next PLC hit an all-time high on Thursday, before closing modestly higher, after the clothing and homewares retailer increased profit guidance for the second time in two months.
"Yet another set of next-level numbers has underlined the group’s unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities," said Richard Hunter, head of markets at interactive investor.
Leicester-based Next raised the outlook on the back of strong sales over the past six weeks.
In the half-year ended July 27, revenue rose 14% to GBP2.86 billion from GBP2.52 billion a year earlier. Next's pretax profit improved 3.9% to GBP432.1 million from GBP415.7 million.
Full price sales rose 4.4% during the period, and growth has picked up in the first six weeks of the second half.
Full prices sales during the six-week period have "materially exceeded our expectations", rising 6.9% on-year.
Next now expects full-year full price sales growth of 4.0%, its outlook improved from 3.4%.
Next now predicts pretax profit of GBP995 million, which would be a year-on-year rise of 8.4%. The outlook was improved from GBP980 million. In August, Next had increased guidance by GBP20 million from GBP960 million.
"The company continues its mantra of under-promise and overdeliver," said Panmure Liberum analyst Anubhav Malhotra.
Next put much of the success down to the strength of its online business where first half sales rose 7.0%. Retail sales fell 2.1%.
"The online business is now central to the group’s fortunes and the results are equally encouraging," said interactive investor's Hunter.
Next pointed to the shift in the business since 2004, away from the high street. In 2004, retail stores accounted for 72% of total sales and 70% of profit, compared to 30% of sales and just 19% of profit now, it pointed out.
"Next often feels like it is running a showcase in how to run a public company – clear, transparent reasoning for the way it allocates its money, detailed guidance and, crucially, a real skill at managing expectations," said AJ Bell's Russ Mould.
Panmure Liberum's Malhotra thinks Next will continue to be a "long-term winner" in the UK fashion and home retail market as competition continues to weaken or exit the market.
The analyst thinks Label, overseas expansion and total platform provide significant scope for expanding profits further in the medium to long term.
"The group generates a 5.5% [free cash flow] yield and returns 4.3% of market cap as cash to shareholders via dividends and buybacks per annum," he noted.
He retains a 'hold' rating on Next.
Jefferies highlighted the emergence of new growth drivers which are starting to increasingly detach Next from domestic demand conditions.
"New growth levers have proved a strongly accretive valuation consideration in recent months," the broker said.
AJ Bell's Mould pointed out Next has benefited from the change in the retail landscape with many competitors either falling on hard times or disappearing altogether.
It has also opportunistically taken stakes in brands such as FatFace and Reiss, which are helping to supplement sales, he explained.
Shares in Next closed up 0.7% at 10,405.00 pence after earlier hitting an all-time high of 11,103.83p.
"Even at these levels the company is not stretched on a historic valuation basis," Hunter commented.
"Next continues to defy any lingering doubts and the strength of its trading performance should rightly grab the headlines from the naysayers who continue to search for chinks in the armour."
By Jeremy Cutler, Alliance News reporter
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