- £275mn of share buybacks expected for 2024
- Reductions in factory gate prices should keep a lid on selling prices
Retailers fared slightly better than expected the Christmas before last, but rising interest rates are feared to have dampened the enthusiasm of consumers during the latest festive season. The incoming flurry of post-Christmas trading updates might confirm this notion – but there will always be outliers.
This time last year we noted that Next (NXT) had “increased its profit guidance after a strong Christmas period”. The clothing and homeware group has duly overdelivered again, noting that full-price sales in the nine weeks to 30 December were up by 5.7 per cent on the comparative period in 2022. Consequently, and following a succession of earlier positive updates, full-year pre-tax profits are now expected to come in at £905mn – a £20mn increase on prior guidance. Total group sales, including subsidiary companies and equity investments, are expected to grow by 6 per cent.
None of this will come as much of a surprise to industry analysts and long-term shareholders in a retailer that has repeatedly bucked industry trends. Management gave thanks to a reduction in factory gate prices and rising real wages levels, but it would be unwise to assume that Next’s performance in the run-up to Christmas will be typical of its high-street rivals.
Indeed, there is evidence to suggest that management was wary of a possible dip in consumer sentiment. Next entered its end-of-season sale with reduced surplus stock, perhaps reflecting increased caution. It may well be justified. The deteriorating security situation in the Red Sea could place strain on supply chains – Next partially relies on Asian imports – and there are concerns over the employment market in the UK.
The outlook is positive even though the group anticipates that wage inflation will amount to roughly £60mn in 2024. Continued reductions in factory gate prices should keep a lid on selling prices. And after paying ordinary dividends of £250mn, Next plans to return £275mn of surplus cash to shareholders by way of share buybacks in the year ahead.
Last IC view: Buy, 3,742p, 21 Sep 2023
