Next Group – ripe for recovery?
Shares in Next are down 25% this year to 5,810p. They are also 31% off their five-year highs, previously seen in December 2021, of 8,440p. Earnings have been hit by the devaluation of the pound and the fashion retailer cut its full-year pre-tax profit forecasts in September from £860 million to £840 million.
However, this is a quality, well-run company. The retail industry is facing tough times, but Next is a strong brand and the shares should benefit from any recovery in sales next year. The retailer had a strong first-half, according to the half-year results in September, with full-price sales up by 12.4% to and pre-tax profits up 16% to £401 million. But since the cost of living crisis has bitten, sales have softened over the late summer and autumn.
In its November trading statement, the company said sales in the 13 weeks to 29th October rose by 0.4% compared to the same period last year. Full-price retail sales in the UK and Ireland were up by 3.1% in the period, although online sales were down 1.9%.
The critical next step will be how the Christmas sales perform, which investors will hear more about on the 5th January, when the company reports its festive trading figures. Next recently bought fashion brand Joules and furniture firm Made.com out of administration. However, Joules’ products won’t appear on Next’s Total Platform until 2024 due to warehousing issues.
One concern is Next’s debt levels, which increased at the half-year from £600 million to £700 million. However, as mentioned earlier, it is beginning to look as though Bank of England interest rate rises may have peaked and economists think inflation is set to dip next year.
Analysts at broker Barclays recently cut their price target on the shares from 8,100p following the recent cut in earnings guidance. However, they still think the shares, which current trade on a price earnings ratio of just 10.6, could reach 7,000p. As such, the shares are a long-term buy.