Year-ahead view more in focus than Christmas sales
With shares approaching an 80% gain in 2019, Next Plc. was one of the least-predicted retail turnarounds of last year. After hesitant early steps, the 155-year old clothier’s multi-channel, multi-brand online strategy and painstaking rebalancing of bricks and mortar operations have been vindicated. The stock’s recent advance has been all the more surprising not just because of an—at the time—seemingly never-ending string of sales and profit misses linked to everything from unpredictable weather to fickle shoppers. The turnaround also raised eyebrows because Next’s semi-discretionary consumer sector is one of the most sensitive to potential impacts from Brexit uncertainty, as well as the inexorable march of retail flows away from the High Street and on to the Web.
As such, the £9.3bn group will be sharply in focus when it kicks off the seasonal sales reporting season for British retailers on Friday. A key point to remember: So long as Next maintains a pattern of high single- to double-digit online sales growth, the market is likely to continue to shrug off persistently tepid store sales. Below are some other key points to know and watch.
- Timing: Next will release a Q4 2019 Trading Statement at 07.00 GMT on Friday 3rd January
- 2019/20 performance: given that it will be end of Next’s financial year, investors are keen to see whether the group with reiterate guidance for pre-tax profit growth of 0.3% to £725m by the time it reports full-year profits in March. Full-price sales are expected to have grown 3.6% in 2019/20, with EPS up some 5%
- Outlook: 2020/21-year sales forecasts will be even more important. Retail sector anxiety showed no let-up in the final part of 2019 as high-profile operators on both sides of the Atlantic continued to struggle. Investors are looking for a forecast of no less than around 3% in terms of Next’s same-store sales growth in the year ahead. That has been the group’s average total run rate for the last several months, including robust digital sales
- Likely stock price reaction: Weaker guidance may undercut recent optimism on the group and weigh on the shares. A stronger than expected outlook is likely to trigger a sharply positive stock reaction
- Valuation: despite a stellar 2019 rally, the stock is still trading on a 9% discount to British and European broad sector retail peers. That compares to a 20% discount on average over the past two years, on a blended forward price-to-earnings basis. The rating reflects continued relative investor caution on Next. However, holders will seek to close the perceived valuation gap to the group’s rivals should it continue to outperform expectations
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.