Prepare yourselves to pay more for goods from high-street chain Next (NXT). That was the main takeaway from the group's half-year results, which contained few surprises thanks to a thorough second-quarter update in early August. Instead, attention focused on management's outlook statement, which concluded that buying costs could rise by a weighted average of around 5 per cent over the course of 2016. But chief executive Lord Wolfson wants to protect margins as best he can, which makes future price hikes likely.
That's not to say that the company's bosses haven't been trying to improve buying and sourcing practices. With global exchange rates acting unfavourably, analysts at Peel Hunt suggest Next's cost base could actually look far worse. But the group has tried to be proactive, moving production into new territories such as Bangladesh and making the entire system as efficient as possible.
Quite how high prices will go remains to be seen, but reading between the lines of the results, Next bosses might have a challenge on their hands. During the opening six months of the year, Next brand sales rose 3 per cent, but full-price sales dipped 0.3 per cent on a comparable week basis, indicating a tightening retail market. Next Directory sales did slightly better thanks to improved stock availability, better website functionality and growth overseas. Clearly, Next customers are on the hunt for bargains, but this left retail margins at 12.4 per cent, down from 14.9 per cent this time last year.
All in all, management says it expects difficult trading conditions to continue until "at least mid-October", but has maintained sales and profit guidance issued in August. That said, by the end of the financial year, Next brand full-price sales growth could land anywhere between -2.5 per cent and +2.5 per cent.
Analysts at Peel Hunt expect pre-tax profits of £800m for the year ending January 2017, giving EPS of 427p, down from £821m and 442p in FY2016.
| NEXT (NXT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 4,933p | MARKET VALUE: | £7.05bn | |
| TOUCH: | 4,932-4,936p | 12-MONTH HIGH: | 8,102p | LOW: 3,550p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 130p* | NET DEBT: | £946m | |
| Half-year to 30 July | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 1.89 | 347 | 187 | 53.0 |
| 2016 | 1.94 | 342 | 189 | 53.0 |
| % change | +3 | -1 | +1 | - |
Ex-div: 8 Dec Payment: 3 Jan *Includes intangible assets of £43.5m, or 30p a share | ||||
