Any company that can record five consecutive years of double-digit earnings growth is getting things right. Add to that further growth forecast for the coming two years, and then place that company in the allegedly-struggling retail market, and you’re looking at something special.
That’s fashion supremo NEXT (LSE: NXT) for you, with an 8% per-year rise in earnings per share (EPS) forecast for both 2015 and 2016 — on top of the 17% rise predicted by the City for the year just ended in January 2014.
Soaring share price
The NEXT share price has been storming ahead, having risen more than 60% over the past 12 months to 6,735p — and over five years it has five-bagged. That’s pushed its price-to-earnings (P/E) valuation from a screaming-bargain seven as of January 2009, to more than 19 based on January 2014 expectations.
We’ll have those full-year results coming up on Thursday 20 March, so are we likely to be seeing that predicted growth? The short answer is yes, we are.
In fact, judging by NEXT’s January trading update, that forecast 17% EPS rise is actually likely to be well beaten.
Beating forecasts
NEXT has upped its pre-tax profit guidance to £684-700m, which would represent a rise of between 10% and 12.6% from the previous year. And EPS growth is now expected to be in the 21.6% to 24.5% range. The firm has also returned £296m to shareholders by way of share buybacks over the year.
Multi-channel selling has been the driver of NEXT’s growth over the past few years, with NEXT Directory sales up 12% in the year to 24 December, and up a massive 21% in the pre-Christmas trading period. Overall, NEXT sales rose 5% year-to-date and 12% in the Christmas period.
Looking forward, while NEXT says it sees the economy continuing to improve, it also suggested that “the problem of little or no growth in real earnings looks set to persist for some time“, and takes a conservative view of the coming year — the company expects sales to grow around 3-7% with pre-tax profit broadly in line.
Special dividend
NEXT also told us that, since its share price has risen above its £52 buy limit, the share buyback has been suspended — the firm hasn’t repurchased any since October. That leaves NEXT with the problem of what to do with surplus cash (which should be boosted by a further £300m in the coming year), and the initial answer is going to be a special dividend of 50p per share.
Going forward, spare cash will be redistributed by further quarterly special dividends or by share buybacks, depending on the share price.
