NEXT shares top the FTSE after strong pre Christmas

NEXT shares rose close to 4% on the day after delighting shareholders by reporting a 2.9% increase in sales in the run up to Christmas, helping the retailer to up its full-year profit forecast.

The UK fashion retailer told shareholders in its interim management statement that between 28^th October and 24^th December, total sales rose 2.9% with year-to-date (YTD) sales growing by 7.7%. Online sales over the period via NEXT Directory were particularly pleasing, rising 7.5% (or 12.9% YTD) whilst Retail sales i.e. sales via stores, rose 0.5% (or 4.6% YTD).

The firm had warned earlier in October that the warm autumn weather was likely to hit sales of winter clothing and thus its full year numbers but today said that strong pre-Christmas sales had lessened that impact on its full-year profits. It said back in October FY profits were likely to fall between £750m and £790m. This gave the firm a reduced mid-point of £770m compared to previous mid-point forecasts of £795m. Today, the firm now expects profits to fall between £770m and £780m, giving it a £5m increase on a new mid-point forecast of £775m.

In reaction, NEXT shares rose close to 4% on the day to hit a high of £68.00, it’s highest level since 3rd December and shares are now trading back above its 30-daily moving average (see below chart).

It’s interesting to see from the chart below, which shows full price sales growth by week against a year ago, that sales were not overly impacted – both positively or more importantly negatively – by Black Friday. This makes its results all the more impressive given the fact that NEXT refrained from indulging in aggressive short term price cut tactics over the traditional US led retail bargain drive. Whilst NEXT did not overly benefit from a sales boost, it did still see small sales growth and may have benefited by riding the additional advertising wave of other retailers over the period. The fact its sales held steady whilst others fought for footfall with desperate price cuts and thus additional margin pressures is positive and gives NEXT scope to boost sales post-Christmas via boxing day driven price cuts which others may have already exhausted without impacting year-on-year margins.

Outlook

The retailer said that the economic outlook for the UK consumer looks “relatively benign” with low inflation creating an end to real wage decline and strong employment painting a better picture than in recent years. Despite this, the firm remains cautious in its sales budgets for the year ahead.

The firm is budgeting for full price sales growth next year to be between 2.5% and 7.5%, which is a fairly wide range and warned that the first half of the year was likely to perform close to the lower end of that range. The firm is also battling against strong comparatives whereby warm weather over the first half also boosted sales early, presumably hence its wide forecast range.

Dividends

NEXT declared a special dividend of 50p per share which will be paid on 2^nd February 2-15 with an ex-dividend date of 15^th January.

The firm has bought back 2.2m shares at a cost of £138m over the year but has not bought anymore since 16^th October as the retailer’s shares price has traded above the buyback upper limit of £64.25. The firm will re-evaluate this upper limit in its March update when it has had a chance to present more detailed sales and profit estimates.