For some time, I’ve thought that multinational clothing, footwear and home products retailer Next (LSE: NXT) is one of the best UK shares to buy now. And today, the company released one of its well-crafted and comprehensive trading updates.
I think the business is well run, and it benefits from having both internet and store sales. It’s been a survivor of the pandemic, so far, and I expect the enterprise to thrive when the coronavirus crisis fades.
Why I think Next is one of the best UK shares to buy now
In the third quarter of the company’s trading year, full-price sales were better than the directors expected. Year on year, the figure increased by 2.8%. And total sales, including items marked down in price, rose by 1.4%.
I reckon that’s a decent outcome considering the constraints imposed by the pandemic. And the directors reckon profit for the full trading year to 25 January 2021 will come in near £365m, which is a full £65m higher than it anticipated in September. Meanwhile, the strong trading leads to the firm predicting a reduction in net debt of £487m by year-end, to £625m.
Next strikes me as a business that’s very far from being on its knees. In fact, considering the circumstances, I reckon the retailer is in good shape. But looking ahead in the near term, the directors acknowledge that its difficult to give trading estimates because of the uncertainty surrounding Covid-19. One of the biggest factors is whether we will see further lockdowns before the end of the year forcing Next’s stores to close again.
And it would be silly of me to dismiss the possibility. But Next points out in the update it has no evidence the virus transmits in the stores. And the directors are unaware of “any studies that suggest clothing and homeware retail presents a significant risk of infection.” Nevertheless, lockdown policy is a blunt instrument, and Next’s operations could be collateral damage if the government uses it.
Deal or no deal, Next isn’t bothered
One of the other unknowns on the immediate horizon is the eventual outcome of the UK’s Free Trade Agreement negotiations with the EU. But Next isn’t bothered about what the outcome may be. Deal or no deal, the changes won’t affect the business much at all. The directors reckon the company is “well prepared” and has set up all the administrative, legal and physical infrastructure needed to operate effectively at the end of the current transitional arrangements.
Indeed, if the UK’s ports continue to operate effectively, they “do not believe that a no-deal Brexit poses a material threat to the ongoing operations or profitability of the Group.” To put things in perspective, the company thinks the highest risk point of entry to the UK is the port of Dover. But less than 2% of stock enters through that port.
There’ll be an update on Christmas trading on 5 January 2021, which I’ll look out for. Meanwhile, I’d be keen to make Next a long-term holding in my portfolio and see any weakness in the share price as an opportunity for me to buy. Right now, with the stock near 6,332p, the forward-looking earnings multiple for next year is around 16. I think that valuation looks fair.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of Next. 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.