Next express keeps rolling
The clothing retailer continues to impress with strong results and a rapidly growing array of brands and services. Matthew Partridge reports
Retailer Next’s shares jumped by 5% last week following a “better-than-expected annual profit haul”, says Holly Williams in the Evening Standard. Next reported a 5% rise in underlying pre-tax profits to £918m for the year to 31 January 2024, better than the £905m it had pencilled in.
That impressive figure even includes a £20m hit from the ongoing Red Sea disruption, while Next had also upgraded its earnings guidance five times in the past year. The firm was also upbeat about the coming year. It said the household-spending environment looked “more benign than it has for a number of years”.
Next’s full-year results certainly gave investors “plenty to be jolly about”, says Hargreaves Lansdown’s Guy LawsonJohns. In addition to the upgraded pre-tax profit, the online division “continues to be the main driver of growth”, with increased warehouse space and operational tweaks “helping to iron out some of the problems of the past”.
While there is “still some work to be done”, planned improvements in infrastructure should bring further cost savings over time. The online focus has helped Next grow its brand in overseas markets, too. It is “eager to seize the growth opportunity” – while sales abroad are still “a relatively small slice of the pie”, they grew by 17% over the full year.
Ample cash on hand
Next’s balance sheet, meanwhile, is also improving, with net debt, excluding lease debt, falling from £797m to £700m, says Lauren Almeida in the Times. With management expecting to generate £615m in cash, net debt should fall by a further £75m in this year, while the company should easily be able to repay a £250m bond that matures in August 2024 and return £288m of surplus cash to shareholders through buybacks. Next is already putting the cash generated by its business to work by becoming “the consolidator of choice in recent years”, says Lex in the Financial Times. Over the past year, it has bought Joules out of administration and captured the intellectual property of Cath Kidston, as well as acquiring equity stakes in other mid-market retailers including Reiss and FatFace.
Thanks to its “total platform” infrastructure product, which appeals to other companies as it takes the hassle out of dealing with IT and warehousing, these investments are already providing “an additional source of profitable growth”.
Not so fast, says the Economist. Its “growing stable of brands, products and services” may be adding growth but it also means that Next is “transforming itself from a retailer into a conglomerate”. This should be a worry given that “the retail graveyard is full of failed conglomerates”, as the demise of Sears in the United States and Philip Green’s empire in the UK shows. Indeed, Next has already admitted it paid “too much” for Joules. Nevertheless, for now its strategy of focusing on the gap in the market “between lines for younger shoppers and items for richer, older folk” seems to be paying off.