The Next (LSE: NXT) share price is a thing of wonder to me. The FTSE 100 fashion and homewares retailer has developed the admirable habit of delighting investors again and again, at a time when rivals keep falling by the wayside.
Many UK high streets are desolate places after waves of store closures, with clothing companies tumbling like skittles. In the last few months, Hunter, Matches, FarFetch and now Ted Baker have collapsed, while SuperDry is struggling, too.
The rise of online shopping is partly to blame, but there is little respite on the web. Witness the travails at ASOS and boohoo.
Brilliant retail stock
The company has weathered the cost-of-living crisis with style. Before this morning’s results, Next shares were up a staggering 64.22% over five years and 28.2% over 12 months. It’s up another 6% in early trading today, after posting a 4% rise in full-price sales in the year to January 2024, with total group sales up 5.9%. Profit before tax rose 5% to £918m. That’s a record high.
Chairman Michael Roney hailed a “very good year” as Next “materially outperformed our initial expectations” in a tough year for the economy.
Next has been busy, improving product ranges and online service, while managing costs and profitability. Its Total Platform venture, which provides websites, marketing, warehousing, distribution networks and contact centres to third-party businesses, is opening up a new stream of revenues and growth.
It has taken on three clients (JoJo Maman Bébé, Joules and MADE, all of which Next owns) lifting the total to seven. Next continues to invest, lifting its equity stake in Reiss by 21% to 72% and taking a 97% equity stake in FatFace. It has also acquired 100% of the intellectual property of Cath Kidston.
Growth with some income
Well-run companies benefit when rivals struggle, and Next looks very well run to me. Next’s shares do not look particularly expensive, despite their blockbuster growth, trading at 14.4 times 2024 earnings. This is more of a growth stock than an income play, with a 2024 yield of 2.44% expected to edge up slightly to 2.6% in 2025.
Yes it generates plenty of cash, and is keen to reward shareholders, returning £425m in total in 2023, made up of £248m of dividends and £177 of share buybacks.
I’m impressed to see it put on such a strong showing, at such a difficult time. It should thrive when inflation retreats and (with luck) the economy starts to pick up. I remember when Next emerged in the 1980s and was sneered at as a yuppie brand. It continues to thrive while that decade is now a fading memory.
Naturally, there are potential dangers. This is retail, after all. Remaining one step ahead of market trends is never easy. Investors may be banking on a recovery that doesn’t come. Acquisitions can be complex. They may not all work. Next shares may struggle to grow as fast as they have done lately.
But after such a strong performance, it looks nicely placed. I wish I’d bought Next years ago, when it was cheaper but the outlook more fragile. But I’d still love to buy it today and will do so the moment I have the cash. Better late than never.
