Why NEXT plc Will Be One Of 2013’s Winners

The retail sector was hit hard by the belt-tightening that resulted from the credit crunch, with some famous names having a very hard time of it.

But you’d never know that looking at fashion expert NEXT (LSE: NXT) over the past five years.

What recession?

In 2009, which was a disaster year for so many, NEXT saw earnings per share (EPS) fall only 8% and still shelled out for a 5% dividend yield. And since then, it’s been double-digit earnings growth and big dividend boosts all the way.

For the year ending January 2013, NEXT recorded a 17% rise in EPS and lifted its dividend by 17% — the yield had dropped to 2.6% by then, but only because the share price has strongly outstripped those dividends. But what of that share price?

Trouncing the FTSE

Well, from a 2009 low of 1088p, the shares have soared more than five-fold to today’s 5,530p — and since the start of January 2013 we’ve seen a 49% rise. The FTSE, by comparison, is up just 13% so far this year having gained around 70% since early 2009.

What lies behind it?

For the half-year to July, NEXT saw total sales up 2.2% on the same quarter a year previously, with pre-tax profit up a very nice 13.8% to £217m and EPS up 19.9% to 142p. And all that enabled a 16.1% lift to the interim dividend to 36p per share.

Handling online business well

Critically, NEXT has been ahead of much of the competition in handling multi-channel sales, with NEXT Directory revenue up 8.3% and operating profit up 13.4% in the first six months.

And unlike companies that are struggling under excess debt, NEXT has modest net borrowings and is using surplus cash to buy back shares “as and when it is earnings enhancing and exceeds our target Equivalent Rate of Return of 8%“.

Things were looking good at third-quarter time too, with sales beating the company’s guidance to rise 4.3%. NEXT Directory sales led the way again, picking up 9.2%.

What next?

For the full year, pre-tax profit is expected to grow between 4.6% and 9.4% over last year, with EPS up 15% to 21%. And the share buyback programme is still going strong, with at least £300m to be returned for the full year, and possibly as much as £350m.

Does this sound to you like a well-managed company that knows its markets and has a firm grip on its finances?

It certainly does to me — NEXT is a worthy winner for 2013.

And finally...

The retail sector isn't the only one that's been doing well in 2013. No, Vodafone and BT have been driving the telecoms business forward in a year that has turned out to be a very active one. That's why we've produced the all-new "Motley Fool’s Guide to Investing in Telecoms", which compares the UK's top two -- did you know, for example, that BT enjoys nearly four times as much revenue per customer as Vodafone?

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> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Vodafone.