2nd Nov 2022 15:25
(Alliance News) - Next PLC returned to form on Wednesday, with investors taking heart from its third quarter update, barely a month after being spooked by an uncharacteristic guidance cut.
Next shares were 1.8% higher at 5,050.00 pence each in London on Wednesday afternoon. The stock had slid 12% on September 29 after a guidance cut.
Next has a history of under promising and over delivering, but despite this reputation in years gone by, the clothing and homewares retailer has warned on a tough consumer backdrop, before knocking earnings out the park - to rave reviews from analysts and investors alike.
Last month, however, it lowered annual guidance with a cost-of-living, spurred on by inflation continuing to move at full throttle, expected to hit the retail sector hard.
While Next's third quarter outcome was a lot better than the grim update reported for the first half, it decided to keep guidance unchanged.
It expects full price sales for the rest of the year to be down 2%, and profit before tax of GBP840 million, a 2.1% increase on last year's GBP823.1 million.
In the 13 weeks to October 29, full price sales including interest income were up 0.4% from a year prior, slightly ahead of the company's expectations. Total product full price sales fell by 0.1%.
While online sales took a small hit, falling 1.9% over the quarter, retail sales grew 3.1% from last year.
In the last five weeks, full price sales were up 1.4%, which Next attributed to a "particularly strong week" at the end of September, when temperatures dropped and the sales of heavier weight products improved.
Analysts at Liberum commented: "Next enters these more challenging times from a position of financial strength. The company's levels of debt are now significantly lower than they were before the pandemic and the value of their Finance business' customer receivables book comfortably exceeds the value of its financial debt.
"The performance of the group is admirable and unchanged guidance for pretax profit of GBP840 million and a very strong balance sheet, provides comfort in making Next one of our top picks for the next 12 months."
Liberum rates Next at 'buy'.
Shore Capital Markets hailed the strength of the retailer's multi-channel offering, though it called the third quarter statement "cryptic" and noted inflation may also hurt its share price.
"While it is reassuring to see the resilient sales in the quarter, noting the consumer sentiment weakness, inflation continues to hit record highs. We, therefore, see Next shares, historically negatively correlated to inflation, trading softer in the short term. Our Hold stance, however, reflects Next's multichannel model's relative strength in light of the consumer backdrop, and we highlight our financial 2024 pretax profit 5% ahead of consensus," Shore added.
AJ Bell analyst Russ Mould said Wednesday's trading statement meant a "disaster has been averted".
"With many online fashion retailers struggling in recent months, and fears that the high street would see a massive slowdown in trade amid the cost-of-living crisis, Next's trading statement could have been horrific," Mould added.
"Instead, we find that a weak August was saved by a strong September followed by a mixed October. Add in a decent boost from finance interest income and you've got a resilient outturn with 0.4% sales growth for its third quarter. In this market, a tiny bit of growth is considered a big win. At this time of year, fashion retailers welcome a drop in weather as it means they can start shifting more coats and jumpers which often sell for bigger profit margins than summer-wear. Although we've just had a mild end to October, the outlook for November is more conducive to shifting winter-wear and Next will no doubt be hoping for a strong end to the year."
By Eric Cunha; [email protected]
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