Next charging ahead

Clothing retailer Next (NXT) is again on track to beat its own full-year profit forecasts after announcing bumper Christmas trading. That news sent the shares soaring over 10 per cent and they now trade at 6,120p.

Despite a deeply competitive retail backdrop, Next's brand sales between 1 November and 24 December - which covers most of its fourth quarter - grew 11.9 per cent. That was driven by a 21 per cent rise in directory sales and a 7.7 increase in retail sales. The outperformance-led management to upgrade pre-tax profit guidance for the year to end-January 2014 to between £684m and £700m, compared with earlier consensus forecasts of £667m. Company guidance for sales growth in the year to end-January 2015 is for 3-7 per cent, with pre-tax profit roughly in line with sales - although management has a history of beating its own forecasts.

There was further good news with the announcement of a £75m special dividend payment, equating to 50p a share and which will be paid on 3 February. That's is in place of a share buy-back scheme after Next's self-imposed share price threshold (5,200p) for repurchasing stock was breached. The company expects to return a further £300m of cash to shareholders this year through quarterly special dividend payments, provided the share price remains ahead of a 5,800p threshold. This would imply a total dividend yield of over 5 per cent.

Numis Securities says...

Hold. Another meaningful beat on numbers and a reminder of its very healthy liquidity further underlines Next's status as the quality sector heavyweight. The likely lack of share buy-backs, however, may limit earnings growth in 2014's full year, although total shareholder return (defined as EPS plus all dividends) should remain comfortably above 10 per cent. The shares remain solid value in the sector context, if less so in absolute terms. The company also remains fairly cautious on the consumer spending outlook. Our price target stands at 6,250p. Expect pre-tax profit for end-January 2014 of £695m, giving EPS of 342.6p.

Nomura says...

Buy. We are upgrading our recommendation from neutral to buy and have boosted our price target from 5,580p to 6,500p. That assumes a forward PE ratio in 12 months' time of 15, based on EPS forecasts for the year to end-January 2016, which is consistent with a small expansion from the current forward multiple. Given management guidance, we have adjusted our EPS estimate for end-January 2014 from 354.2p to 374.4p, while for 2015 we expect brand sales growth of 4.9 per cent, and have therefore boosted our EPS estimate from 389.9p to 408.2p. On our new numbers, Next offers 15.2 per cent total shareholder return. Next's trading is exceptional.