Next share price has been one of the retail outperformers over the last 12 months, despite being exposed to one of the worst retail environments in modern times.
At the end of last year, the shares managed to push above their pre-pandemic peaks of 2020, and also post new record highs at the end of January, in a narrative completely counter to the wider retail environment.
It’s no secret high street retailers have struggled, with the various restrictions and lockdowns hampering their business models, and while Next PLC (LON:NXT) has managed to adapt better than most, it doesn’t mean that it’s been a completely seamless adaptation.
When the first lockdown happened, sales got clobbered by 52%. In that period, the retailer upscaled the picking capacity of its warehouse operations in order to improve the on-line business, as well as delivery times, which had been suffering due to the extra workload.
Rather than fight against the effects of the pandemic, the shutdowns merely served to force Next to accelerate its transition to online which it was already very strong in. This strength allowed management as they put it to “follow the new money”
This strategy of “Following the Money” helped the business to a much better second half than its first half, and as a result post profits while lower than the £749m a year ago, were still fairly decent at £342m, albeit lower than market expectations.
In October, Next said full price sales were better than expected in Q3, and that full year profit before tax was expected to come in at £365m, an increase of £65m on the previous estimate.
Risks to this forecast were several, with lockdowns throughout the country at the time a clear risk.
The company set out three scenarios in the event of such a scenario for its Q4 with a two-week lockdown suggesting a 20% decline in sales.
Given that we’ve been locked down for over two months, never mind two weeks this estimate soon became rather dated.
In January, Next said that full price sales in the pre-Christmas period dipped by 1.1% for the nine weeks until 26 December, however when estimates were for an 8% decline, it still came across as a decent result.
This prompted Next to downgrade its full year pre-tax profit forecasts from £365m to £342m, a number which was confirmed in its results this morning.
While this was below market estimates of £355.6m it was pretty much in line with the management guidance given in January.
Full year full price sales showed a decline of 15%, which in the circumstances comes across as a fairly decent result given that most of this decline happened in the first half of its fiscal year, and with revenues coming in at £3.28bn.
In terms of the outlook the company was more bullish with guidance for 2022 for pre-tax profits of £700m, however there were no plans to resume the buyback program and the dividend remains suspended.
Despite the closure of its retail stores through February and March, online sales very much picked up the slack, and Next expects this trend to continue with total sales expected to rise 18%, over the next 12 months, with the reopening of retail stores on 12th April, expected to herald a big uptick in demand.
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