George Osborne's new 'living wage premium' (LWP) should only cost high-street retailer Next (NXT) £2m next year. The chain already pays new staffers £7.04 an hour, so an increase to £7.20 in 2016 will be "manageable", according to the group's bosses. However, the retailer said further projected rises in the LWP up to the year 2020 - at which point the Office for Budget Responsibility reckons workers will be paid closer to £9.35 an hour - could cost £27m a year on top of general wage inflation.
Management see this cost as "not immaterial", but also "not transformative". Group finance director Amanda James said prices would have to rise by 6 per cent before 2020 to accommodate the combination of wage growth and the LWP - a "negligible" increase over four years. And even this view was "pessimistic", said Mr James, as Next has managed to offset price increases with productivity gains in the past.
In fact, there was evidence of such gains in these results. The net operating margin rose from 14.1 per cent to 14.9 per cent as the group's buying teams "overachieved" on their target margin, helped by better currency rates.
Meanwhile, Next is still handing back cash to shareholders. Based on the group's own calculations, the share price is too high to justify share buybacks. Instead, management has already paid three special dividends this year - 50p a share in February, 60p in May and 60p in August - and will pay out 60p a share again in November.
In the first half, Next branded sales grew 3.3 per cent, reflecting strong growth in the large directory business, which includes the website. Sales there jumped 8.2 per cent, delivering a 7 per cent uplift in operating profit to £184m. But sales in the retail arm only moved up 0.2 per cent, with like-for-like sales shrinking.
Analysts at broker Investec Securities expect pre-tax profit of £841m for the current financial year, giving EPS of 429p, up from £782m and 402p in the year ended January 2015.
| NEXT (NXT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 7,765p | MARKET VALUE: | £11.9bn | |
| TOUCH: | 7,765-7,770p | 12-MONTH HIGH: | 8,055p | LOW: 6,005p |
| DIVIDEND YIELD: | 2%* | PE RATIO: | 18 | |
| NET ASSET VALUE: | 200p | NET DEBT: | 180% | |
| Half-year to 31 Jul | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)* |
|---|---|---|---|---|
| 2014 | 1.85 | 324 | 173 | 50.0 |
| 2015 | 1.89 | 347 | 187 | 53.0 |
| % change | +2 | +7 | +8 | +6 |
Ex-div: 10 Dec Payment: 4 Jan *Doesn't includes special dividends (60p a share due to be paid in November 2015, ex-div 8 Oct) | ||||
