I don’t believe the Next (LSE: NXT) share price will languish near its current level of 7,286p for much longer.
The fashion, homewares, and beauty products retailer is winning the physical store and online race. And there’s an entrepreneurial management team in place finding new ways to grow the business.
Meanwhile, the half-year results report delivered on 21 September shows figures that beat the directors’ prior expectations. The numbers for sales and profit growth are modestly positive as general macroeconomic recovery begins to gain traction.
The directors pointed to easing inflationary pressures. However, the National Living Wage will likely put pressure on staff costs.
But the company is finding it “much easier” to recruit now than a year ago. And that softening labour market coincides with the introduction of labour-saving automation and systems improvements across the business.
Such advances have reduced the firm’s requirement for new recruits in areas such as warehousing and contact centres.
Resilient consumer demand
Meanwhile, despite cost-of-living pressures, consumer demand has been resilient. And the directors put that down to the strength of the employment market.
I’d describe the company’s overall outlook statements as cautiously optimistic. But Next has something of a reputation for under-promising and then beating expectations. So I find the outlook reassuring.
The business has been holding its own through the travails of the past three to four years. And as other online operators like ASOS and Boohoo struggled, Next has been winning the online race.
The interim report shows around 60% of sales are from the online channel. And just 35% comes from traditional stores with the rest from the finance operation.
The online business is a big driver of the firm’s current success and it will likely power the enterprise to further growth in the years ahead.
Next has invested in its online operation to optimise execution. A new warehouse called Elmsall 3 delivered a “significant” increase in the number of picking locations during the first six months of the year. And that combined with operational initiatives to drive a “dramatic” improvement in efficiency, reliability and cost of operations.
On top of that, the company has modernised much of its online software over the past two years. And that made the website more robust, cheaper to operate, and faster to develop.
Shooting for growth
And with slicker operations, the directors plan to shoot for business growth overseas and by developing new product ranges outside the Next brand.
One exciting initiative is the company’s Total Platform and its associated Total Enterprise Platform.
The concepts aim to create additional value from the Next’s proprietary technology and online infrastructure. The company aims to build “a community of entrepreneurial brands, sharing outstanding infrastructure, built on common technology that continues to develop and improve”.
However, the sub-business is in its infancy right now. Although it could be an area that builds growth for Next in the years ahead, acting like a tool for mergers and acquisitions.
The retail sector is sensitive to economic cycles. And Next may not achieve its growth ambitions without challenges. And full-year earnings look set to dip lower, adding some risk for shareholders.
But I see the company and stock as well worth investors’ deeper research and consideration now.