5th Jan 2023 11:05
(Alliance News) - Next PLC's resilience and outperformance, particularly during the Christmas period and despite sector-wide inflationary pressures, highlights that it is a stock worth investing in, analysts at Liberum said on Thursday.
Next shares were 7.1% higher at 6,531.00 pence each in London on Thursday morning.
It reported strong Christmas trading with full prices sales in the nine weeks that ended December 30 up 4.8%, well above a prediction of a 2% fall.
For the year ending in January 2023, the Leicester, England-based clothing and homeware retailer increased its 2022 pretax profit guidance to GBP860 million, from GBP840 million. The guidance would represent growth of 4.5% against the year prior, if achieved.
"Sales in the Christmas period have been better than we anticipated," Next explained.
As a result, Liberum expects Next shares to increase further, setting a price target for Next of 7,500.00p and maintaining a strong 'buy' rating.
This is despite Next issuing cautious guidance for its financial 2024, expecting pretax profit to fall to GBP795 million.
Next has a reputation for damping enthusiasm with a cautious outlook, before impressing the market with raised guidance.
Next has tinkered with its guidance on several occasions during the current financial year, initially forecasting pretax profit of GBP860 million, lowered to GBP850 million in March, before rising back to GBP860 million in August and down to GBP840 million in September.
Next's caution was driven by the impact of costs of goods sold from a weakened pound and inflationary impacts in operating costs, particularly from labour and energy prices.
It expects a full price sales decline of 1.5% during its financial 2024, despite full prices sales rising by 2.2% in the six months that ended December 30 from a year earlier, and by 4.7% in the three months that ended December 30.
Liberum argued Next's caution was overstated.
"These pressures are easing with a notable second half improvement versus the first half of its financial 2024 estimate," said Liberum analysts Anubhav Malhotra, Adam Tomlinson and Wayne Brown.
Liberum also said Next stores performed better than expected with 13% sales growth, while online sales remained flat. The additional sales of around GBP66 million drove Next's additional GBP20 million pretax profit forecast for its financial 2023, suggesting adjusted earnings per share grew by 6.9% from 4.5% previously.
Rising stores sales and flat online sales is a trend likely to become apparent across the retail sector, Liberum added.
By Greg Rosenvinge, Alliance News reporter
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