At the moment, not a day goes by without another story of distress from the high street. Bricks-and-mortar retailers across the country are suffering from high rents, online competition, and changing consumer tastes, a toxic combination of negative factors that have left many retailers reeling.
However, against this backdrop, some have thrived, and Next (LSE: NXT) is one of them.
A changing business
Next is, to my mind, one of the best-run companies in the UK. The firm is always open and honest with investors, and will only open a store if it has the potential to make a return on investment within two years. If not, Next will spend its money elsewhere.
In recent years, rather than spending money on stores that might not produce a return, the company has been returning cash to shareholders instead.
That’s not to say the business hasn’t been investing. Next has been spending millions of pounds in building out its delivery infrastructure as part of its plan to boost its huge e-commerce business.
And the strategy is paying off handsomely. According to the latest trading update for the 26 weeks to the end of July, online retail sales increased by 11.9% year-on-year, more than offsetting the 3.9% decline in full-price bricks-and-mortar retail sales. Online now accounts for more than half of group sales.
As well as boosting investment in its online offering, Next has been aggressively restructuring its offline store portfolio. As a result of these efforts, and the online growth, management increased the company’s full-year profit guidance by £10m to £725m back in July. Thanks to share repurchases, earnings per share are expected to increase by between 3.4% and 5.2% year-on-year. Only a handful of other retail businesses are currently reporting this kind of growth.
Today you can snap up shares in this retail giant for just 13.1 times forward earnings. It also supports a dividend yield of 2.8%, and the company has a history of paying out special dividends to investors during good years.
The other FTSE 100 stock that I think is one of the best shares to buy now is Unilever (LSE: ULVR). This is one of the world’s largest fast-moving consumer goods companies. It owns some of the biggest food and personal care brand names in the world, and around half of the company’s sales come from emerging markets.
Unilever’s exposure to some of the world’s fastest-growing economies should help the firm continue to grow earnings even if the UK enters a recession due to Brexit. Indeed, analysts expect the company’s earnings per share to increase by nearly 10% this year and a further 10% in 2020. A combination of sales growth, margin expansion, and share buybacks are all expected to contribute to this enlargement.
At the time of writing, shares in this global consumer goods giant trade at a forward P/E of 21.8. That’s pretty expensive, but based on City targets for growth, the multiple is projected to fall to 19.8 in 2020. I think this is a price worth paying for such a defensive global giant. The shares also support a dividend yield of 3%, and the payout has grown at double the rate of inflation for the past 10 years.
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Rupert Hargreaves owns shares in Next and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.