- Annual profits guided to rise 5 per cent
- Sales decline expected in Q2
Next (NXT) shares have risen by more than a third over the past 12 months as the company got into the habit of raising guidance on the back of better than expected trading. As with the full-year results release in March, there was no upgrade in this first-quarter update, but the full-price sales performance for the 13 weeks to 27 April did come in ahead of management forecasts.
The retailer's top line continues to be driven forward by the online arm, which posted full-price sales growth of 8.8 per cent in the period as retail sales were flat. Finance interest income was up 6.4 per cent. This meant an overall trading full-price sales growth rate of 5.7 per cent, better than prevous guidance of 5 per cent.
Management stuck to its full-year growth forecasts of 2.5 per cent for full-price sales, 6 per cent for total sales and 4.6 per cent for pre-tax profit. The difference between the full-price and total sales rates is down to the company's stakes in FatFace and Reiss.
This means Next expects full-price sales to decline slightly in the second quarter, a result it attributes to tough comparatives due to the hot weather last May and June.
RBC Capital Markets analysts think Next's "mix of sales should be favourable for margins, given online and finance are higher-margin businesses". They added that they view its flat retail sales "as a small negative for sentiment on the likes of Associated British Foods [ABF] and Marks and Spencer [MKS]".
We view the steady guidance as sensible and remain favourable on the medium-term outlook for the company as it makes progress with its total platforms business and expands its brand portfolio.
Last IC view: Hold, 8,952p, 21 Mar 2024
