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Is NEXT plc Set For Electrifying Earnings Growth In 2014?

Today I am looking at the earnings prospects for British retailing institution NEXT (LSE: NXT) in 2014.

Earnings ready to rumble higher

In my opinion, NEXT is in great shape to punch stratospheric earnings growth next year and beyond. Through a blend of building its brand at home, expanding its presence in overseas markets — particularly those in red-hot emerging markets in Asia and Latin America — and maintaining a competitive pricing environment, the retailer has been able to post sustained revenues growth despite enduring difficulties for the average UK customer.

And data released by the Office for National Statistics this week would have no doubt boosted the retail sector’s confidence for the year ahead. These showed UK retail sales edge 0.3% higher in November from the previous month, and advance 2% from the corresponding period in 2012. Particularly encouraging for the nation’s clothing retailers was that sales of clothes, shoes and textiles led the way, advancing 3.8% last month from October levels.

As well, NEXT would also have been buoyed by news that online transactions hit a record in November, accounting for 11.9% of all sales. The firm has invested heavily in its NEXT Directory online and catalogue division to latch onto appetising growth rates here, and sales here leapt almost 10% in the first nine months of fiscal 2014.

City analysts expect NEXT to follow up strong earnings growth in each of the past four years — the company has clocked up a compound annual growth rate of  12.3% since 2010 — with an additional 18% expansion in the 12 months concluding January 2014, to 334.7p per share. Growth is expected to slow to 9% in the following year, to 364.9p, although remains at respectable levels.

These figures leave the retailer dealing on P/E ratings of 16.2 and 14.8 for 2014 and 2015 correspondingly, roughly in line with the forward average for the wider FTSE 100.

A combination of falling inflation in the UK — the consumer price index (CPI) struck a four-year low of 2.1% in November — and improvements in the broader domestic economy could help improve the pressure on consumers’ pursestrings could ease significantly looking ahead, a great precursor for the earnings outlook across the British High Street.

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> Royston does not own shares in NEXT.