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Next Bucks the Trend with "Exceptional" Sales

As the high street slows down, online sales ramp up for the retailer, which has raised its profit guidance for the year

James Gard 31 July, 2019 | 10:37AM

Next store

The troubles of the UK high street are well known but Next (NXT) has defied the odds with an upbeat trading statement that has sent shares up 9%.

Driven by a strong performance from the FTSE 100 retailer’s online division, sales were up 3.8% in the six months to the end of July. Next saw a boost from warmer weather in July and that coincided with the company’s end-of-season sale. The firm said July’s sales were exceptional and is basing forecasts on more subdued May and June sales.

“These are strong figures from Next, the second consecutive quarter in which they’ve beaten expectations, so it was not surprising to see the shares respond in early trading with an 8% rise,” says Ian Forrest, investment research director at The Share Centre.

Next shares rose 562p to £61.40, a gain of more than 9%. In the year to date shares are up from £41.77 to £61.42, a gain of 47%, compared with a rise of 143% by the FTSE 100 over the same period.

Next has raised its profit guidance for the full year by £10 million to £725 million, but this would only represent growth of 0.3% on the previous financial year.

Despite the Brexit uncertainty and squeeze on consumer spending, UK retail sales were unexpectedly strong in June: sales were up 0.9% in June from the month before and are up 3.6% on the year, according to ONS data.

A recent survey by the Confederation of British Industry (CBI) provided a more sobering picture, with nearly half of the retailers surveyed saying that sales were down in July compared with a year ago. Most of the retailers surveyed are based on the high street, where life seems to be tougher for than in the online arena. This is borne out by Next’s trading update: high street sales were down 3.9% in the six months, while online sales surged 11.9%.

Next makes up nearly 4% of the portfolio of the Edinburgh Investment Trust (EDIN), which has a Silver rating from Morningstar and is managed by Neil Woodford’s former colleague at Invesco, Mark Barnett.

Morningstar analyst Peter Brunt notes that the trust has increased its dividend every year since 1973 (barring a couple of years) and Next is considered a solid dividend payer. While not in the league of the FTSE 100 pharma companies or utilities, Next’s near 3% yield is backed by a dividend cover of more than 2.5, which means that it could pay dividends more than twice over by using this year’s earnings.

Next also makes up 4.38% of Mark Barnett’s open-ended Invesco UK Equity Income and is the fifth-biggest holding in his Bronze-rated Invesco Income fund.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Edinburgh Investment Ord609.03 GBP0.67
Invesco Income UK Z Acc307.04 GBP0.50
Invesco UK Equity Income Z EUR Acc10.47 EUR0.39
Next PLC6,874.00 GBP0.00

About Author

James Gard  is content editor for Morningstar.co.uk

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