With anything that involves an element of uniqueness, comes variety. The fashion industry is arguably the proverbial poster boy for variety at the current time. The sheer number of brands available to consumers is quite remarkable.
But it’s in trouble. The traditional high street shopping experience has been intensely challenged by online disruptors. They use savvy social media and marketing skills to reach a new generation of customers. And these challengers aren’t going anywhere any time soon. In fact, their presence will only grow.
Current events and performance
Next (LSE:NXT) has a long history in both physical stores and catalogues. That helped it to make an early leap into online. And also to become a major omnichannel name. It continues today to take big steps to integrate its online and offline proposition. It’s using stores to drive click & collect, including one-hour in-store pick-up, and to process e-commerce returns. It has also partnered with Amazon to allow customers to pick up parcels from its stores – driving footfall and incremental spend.
The retailer operates around 500 stores domestically and around 200 in 32 other countries. In the year to 25 January, its statutory sales rose 2.4% to £4.26bn and profit before tax rose 2% to £748m.
But the full-year results published yesterday also contained warnings regarding the coronavirus impact. Next expects to lose 10% of annual sales at a minimum, with a worst-case scenario seeing it losing 25% of sales.
There will be no final dividend, which would have been 116.5p per share. Instead, Next announced an interim payout of up to the same amount to be paid between August and October. For me, these few takeaways represent a business in good shape but also preparing as best it can for a scenario it has not experienced previously.
It’s worth noting that recent data by retail analyst Springboard showed overall footfall at the back end of last year fell by 4.3%, even before the virus hit. Next clearly isn’t alone in its struggles in the retail sector.
Like some peers, the recent market crash has seen it lose a lot off its share price (approximately 40%). However, I believe this is where the opportunity lies. Closing on Thursday at 4,054p and below 4,000p as I write, the shares of this FTSE 100 champion can be picked up cheap. The current price-to-earnings ratio sits at just under 10, compared to close to 12, which is where the wider FTSE 100 currently stands.
In the year before the coronavirus started to impact the market and share prices, Next enjoyed a rise of around 35% in its share price, reflecting investors’ faith in its future. And I agree with them, In my opinion, it’s not all doom and gloom for this retailer, even though the current short-term pain is not to be overlooked.
On that basis I would consider buying and holding Next shares at this moment in time. I believe it can return to its former glory at some point in the near future and could become a good earner. The only obstacle you may experience is time. How long before markets return to some form of normality? I can’t answer that. But I wouldn’t wait too long to get in on the Next act and add the shares to my portfolio.
Jabran Khan has no position in any of the shares mentioned. 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.