Strong online sales overcome festive fears at Next

“In a marked contrast to the start of 2017, when a profit warning hammered the shares, Next sits proudly at the top of the FTSE 100 leaderboard after its Christmas statement showed improved full-price sales momentum, exceeded profit expectations and offered a £300 million share buyback, as the firm demonstrated the power of its online operations,” says Russ Mould, AJ Bell Investment Director.

“Shareholders will be particularly pleased to see the 13.6% year-on-year surge in online, full-price sales, even as trading in the High Street stores remained tough, judging by a 6.1% drop in full-price sales here in the run-up to Christmas.

“This enabled Next to reduce the amount of stock put on sale, which in turn helps margins by reducing the need to discount to shift the goods. In addition, the website makes it easier for the company to shift products that are in the sale – rather than scattering them across its stores estate around the country and hoping for the best, the retailer can keep the goods in its warehouses and sell them to those customers who have placed online orders.

“This helps to explain why Next was able to raise the mid-point of its pre-tax profit guidance for the full year to January by 1% to £725 million and reassure on profit forecasts for the fiscal year to January 2019. While a forecast of a drop in pre-tax income to around £705 million may not sound exciting, it still means Next is meeting analysts’ estimates rather than missing them, unlike last year.

“Better still, the company clearly remains highly cash generative, as boss Lord Wolfson is to oversee the launch of a new £300 million share buyback programme.

“Next abandoned its buyback scheme early in 2017, reviving it only in September and an extension of the plan would suggest that management is becoming more confident in trading and especially cash flow.

“That cashflow also underpins dividend forecasts. Next may not repeat the 180p-a-share in special dividends for fiscal 2017-18 but even an unchanged regular dividend of 158p would represent a perfectly respectable yield of 3.2%.”

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Source: Next company accounts, Digital Look, analysts’ consensus forecasts

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