3 Elements Set To Drive NEXT plc To The Stars

Royston Wild looks at the critical factors which make NEXT plc (LON: NXT) a stunning stock pick.

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Today I am looking at why I believe NEXT (LSE: NXT) is ready to charge higher.

A market leader in online shopping

Make no mistake: NEXT is one of the best-placed UK retailers to benefit from the boom in online shopping. Strong investment in the firm’s NEXT Directory internet and catalogue division helped to drive sales here 12% higher from January last year to Christmas Eve, comfortably outstripping growth of 1.2% in its stores and helping to push group turnover 5% higher during the period.

And recent sales data underlined the massive earnings potential of these lucrative online channels, particularly as shopping by mobile phone and tablet PC continues to accelerate. The IMRG Capgemini e-Retail Sales Index showed sales across all retail sectors surge 18% year-on-year in January, with revenues from clothing advancing by a chunky 9% over the period.

Consumer confidence on the uptick

Promisingly for NEXT and its rivals, signs of an upturn in consumer confidence bodes extremely well for spending levels looking ahead. The GfK UK Consumer Confidence Index released last month showed levels reach -7 in January, the highest level for six years.

A strong recovery in the domestic economy has helped to turbocharge this improvement in customer sentiment, with GDP growth of 1.9% in 2013 the strongest performance since early 2008. Indeed, GfK noted that its confidence gauge had swung a gargantuan 20 points since April, representing “only the third time in the 40 years of the Index that there has been such a nine-month shift.” I believe that activity at Britain’s tills should ramp up further in line with further economic expansion.

A reliable growth selection

NEXT has proven itself hugely adept at keeping sales moving higher even as wider macroeconomic issues over the past five years have crimped consumer spending power. Indeed, a confluence of extensive brand development and promotion; the popularity of its fashion and homeware lines; and

the aforementioned success of its online offering have helped earnings punch double-digit annual increases during each of the past four years.

And City analysts expect the firm to follow up expected growth of 17% for the year closing January 2014 with rises of 8% in both 2014 and 2015. I believe that NEXT’s proven record in keeping earnings expanding, even in times of severe economic pressure, and strong investment online and in overseas markets makes it a great pick for investors seeking solid growth prospects.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in NEXT.

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