Next (NXT) share price rises as it weathers high street woes to up earnings guidance
Next reported the results from a difficult year for the retailer, with both sales and profit dipping for the year to January 2018.
The retailer said last year in many ways, was “the most challenging” it had faced for 25 years, as a difficult clothing market coincided with “self-inflicted product ranging errors and omissions”.
It said though the wider economy, clothing market and the high street look set to “remain challenging”, its earnings per share guidance will edge forward.
Shares rose three per cent in early trading.
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The figures
Earnings per share declined as the high street giant had guided – down 5.6 per cent to 416.7p.
There was an 8.1 per cent drop in profit before tax to £726.1m from £790.2m the year before, in line with the drop analysts had been expecting.
Total sales dropped back by 0.5 per cent to £4.1bn, with solid 9.2 per cent growth in online sales offset by a steep drop in Next retail. Profits in its retail business slumped by nearly a quarter.
It has proposed an ordinary dividend of 105p per share, making 158p in total for the year – in line with 2017.
Why it’s interesting
The high street stalwart has not escaped the pain hitting a raft of retailers. And Next also said its new store portfolio “marginally” missed its sales target, predominantly as most of the targets were set some time ago “when prospects for retail stores were more benign”.
However, it struck a brighter note for the time ahead, saying it expects to generate £300m of surplus cash.
“As outlined in our January 2018 trading statement, we intend to return £275m of remaining surplus cash (£300m surplus less £26m purchased in 2017/18) to shareholders through share buybacks, subject to market conditions,” Next said in its results.
Richard Lim, chief executive at Retail Economics, said: “While the self-inflicted admission of ranging errors damaged the business, wider structural challenges pushed store profits down by almost a quarter leaving online the only profitable part of the business.”
Next continued to benefit from a strong omnichannel proposition with online sales growth nearing double digits. But the true cost of operating the online side of the business had been vastly understated by almost £15m last year.
Next are by no means the only retailer trying to navigate this perfect storm of rising sourcing and operating costs against a backdrop of seismic structural shifts in shopping behaviour and softer demand. This has been evident by the wave of high-profile administrations and CVAs just this week.
What the company said
Chairman Michael Roney said:
As anticipated, the year to January 2018 was challenging for Next and, in line with our January 2018 guidance, Earnings Per Share declined by ‑5.6 per cent to 416.7p. We are proposing a final ordinary dividend of 105p taking the total ordinary dividend to 158p, flat on last year.
“Even though the wider economy, clothing market and high street look set to remain challenging, at our central guidance for the year ahead, earnings per share will modestly move forward,” he added.
He said the company’s core strategy remains unchanged – “focused on products, our profitability and returning surplus cash to our shareholders”.
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