What's new
■ Late third-quarter sales rebound
■ Directory business growing strongly
■ Evidence of trading volatility
When clothing retailer Next (NXT) reported its half-year figures in September, it revealed that trading since the early part of the third quarter, for August and early September, had been "unusually quiet". So news that trading during the third quarter as a whole had recovered somewhat - since Olympics-related distortions had worked through - was certainly welcome. Specifically, the group experienced stronger sales in late September and early October - third-quarter retail sales grew 1.1 per cent with directory sales up by a solid 5.6 per cent.
Looking forward, Next sounded its usual cautious note - overall, said management, performance "remains volatile, making it hard to draw conclusions from any one short period of time". Yet Next felt able to say that sales in the final quarter are likely to increase broadly in line with sales for the year to date - Next brand sales in total are up 3.8 per cent so far in the year to date. Accordingly, management has narrowed its full-year sales growth guidance to a range of 3 per cent to 4.5 per cent. The group also expects pre-tax profit of between £590m and £620m. Next will issue a trading update for the all important Christmas trading period on 3 January 2013.
Numis Securities says...
Hold. Next revealed a pleasing recovery in last September and October and the group remains the benchmark in translating relatively modest like-for-like sales into solid earnings - a model that others are now adopting. But we view the valuation, which is in line with its peer group average of 12 times forecast earnings, as appropriate. Following the rise in peer group multiples, we have increased our share price target from 3,400p to 3,750p. We have kept our estimates unchanged and expect pre-tax profit for the year to the end of January 2013 of £617.6m, giving EPS of 273.2p.
Oriel Securities says...
Hold. Next remains an exceptionally well managed and cash generative group. Over the last couple of years, Next has enjoyed a re-rating - driven by its strong internet growth, overseas opportunities, and the consistency of its profit and cash generation. But if the clothing sub-sector enjoys better demand conditions and pricing discipline over the coming months, it's hard to see Next benefiting as much as others in the sector. So we retain our hold recommendation - with a price target of 3,500p - and have a preference for Debenhams and Marks & Spencer. Expect EPS for the full-year to end-January 2013 of 279.7p.
