NEXT plc – Don’t Worry, Everything’s Fine

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NEXT plc (LON:NXT), the high street and online retailer has reiterated its guidance in a trading statement covering the first 13 weeks of its current financial year. The group sees full price sales for the year growing by between 2% and 8%, with profits between £795m and £895m which would represent a decline of 3% at the low end and growth of 9% at the upper end.

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Q1 2022 hedge fund letters, conferences and more

The market had been fretting that NEXT would not be able to reach its sales and profit targets for the year, and the stock has been a laggard year to date, But today’s news looks to have provided the reassurance the market was looking for and the stock was trading around 3% higher in early markets.

In the first 13 weeks to end-April, retail sales leapt by 285%, reflecting the fact that most stores were closed for most of the prior year period. Conversely, with shoppers able to visit stores this year, online sales fell by 11%, leaving the overall outcome an increase in full price sales of 21% versus last year. Sales growth is expected to moderate sharply in the remaining weeks of the year to a pace ranging from -3% at the low end and +5% at the upper.

Management provided a comparison with the pre-pandemic rate of sales, which shows the group having grown sales by 21%, equivalent to 6.5% per annum.

NEXT's Guidance

Commenting on NEXT plc’s statement, Steve Clayton, HL Select fund manager said:

“What NEXT haven’t said today is more important than what they have. Markets were concerned that the group would be struggling with costs and availability of product, putting margins under pressure, even before customers struggled with the squeeze on their own incomes. Instead, the company have reiterated their guidance from March, suggesting that their cost controls are succeeding.

Customers look to be accepting the price increases the group are putting through, rather than leaving the stores empty-handed. In short, the year is unfolding as the group had planned and whilst back in March NEXT management were throwing caveats around like confetti, so great were the uncertainties, come May they are no longer stressing the downside risks. The company have continued to buy back shares, spending £107m so far this year, which will help to boost earnings per share growth.

NEXT’s strength of cash flows leaves them far better placed than most retailers to continue prospering even when times get tough. And they certainly are tough right now. The group’s digital strengths served them well through the pandemic and will help them prosper in the future. NEXT remains the retailer best placed to continue to thrive, both on the high street and online."

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