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THE Next share price is already well above pre-pandemic levels, reflecting a sector-leading online performance that overcame the effects of in-store sales declines. Progress slowed in 2021, but can today’s trading statement help reinstate the upward trend?
Next shares have begun this year overshadowed by leaps in the share prices of companies best-placed to capitalise on consumers being out and about again, raising new questions about this multi-channel retail star’s prospects in relation to other, more traditional retailers in 2022.
Based on its trading performance in the eight weeks to 25 December, Next appears to have been going from strength to strength. Full price sales were 20% higher than during the same period in 2019, just before the pandemic struck.
Next last raised its profits guidance with its half-year results in September, saying pre-tax profits would get to £800 million in the current year to January. Today, it has raised that guidance yet again, this time to £822 million, which would put profits 9.8% above where they were two years ago.
Investors can now add a second special dividend of 160 pence per share – to be paid at the end of this month – to the 110 pence they received last September.
Total online full-price sales were up 45% in the quarter versus 2019 compared with 55% up at the halfway stage in September. So online growth has already slowed, as bricks and mortar stores have gotten into gear.
This may well continue. While Britain’s clothing store sales rose above pre-pandemic levels for the first time in November, the proportion of UK retail sales conducted online fell to its lowest since March 20201.
Moreover, with positive tests for Omicron still rife, presumably threats to supply chains haven’t gone away. Next reports having suffered labour shortfalls in warehousing and distribution in the fourth quarter of last year.
Another issue for all retailers is that the National Living Wage is set to rise by 6.6% to £9.50 per hour from 1 April.
In September, the company guided for cost price inflation to average 2.5% in the first half of this year. However, that forecast is dwarfed by today’s guidance that the Group’s wages bill could now increase by 5.4% over the year ahead.
The company’s Total Platform e-commerce outsourcing service covering technology, warehousing and logistics, promises some additional future growth and is, perhaps, now the most exciting part of the business. Current top clients include Laura Ashley, Gap and Victoria’s Secret.
Given the prospect of a slowing growth trajectory overall, the pace of improvement in the Next share price may remain modest from here. Next is guiding for full-price sales growth of just 7.0% in 2022/23 compared with the current year.
Positively, the shares appear to be reasonably valued, trading on around 18 times earnings2. That continues to compare favourably with a multiple of about 26 times for the MSCI UK Consumer Discretionary Index, of which Next is a part3.
More on Next
1 ONS, 17.12.21
2 Bloomberg, 06.01.22
3 MSCI, 30.11.21
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