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Why Shares In NEXT plc Soared

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: The share price of Next (LSE: NXT) —  the multinational clothing, footwear and home products retailer — lifted over 10% in early trade this morning, following publication of a trading statement in which the company reported fourth quarter sales that were “significantly ahead” of expectations. 

The fourth quarter saw Next Directory sales rise 21% and Next Retail sales grow by 7.7%, to give an increase of  11.9% for total Next brand sales.  Overall, for the year-to-date, Next brand sales are up 5%.  A strong run-up to Christmas has resulted in an 11.5% decrease in total stock for the company’s end of season sale, and final clearance rates are expected to be marginally ahead of last year.

So what: As a result of the strong sales figures, Next is revising its profit forecast range to £684m to £700m.  And, as result of its share buyback programme, which saw  6.2 million shares cancelled over the past year, and a lower rate of corporation tax, the company expects growth in underlying EPS of between 21.6% and 24.5%.

The company has also announced that it currently expects to generate and return a further £300m of surplus cash over the course of the next year.  The cash will be returned to shareholders either through quarterly special dividends or via buybacks, depending on the share price at the time.  And further to this morning’s trading statement, Next has declared a special dividend of 50p per share, to be paid on 3 February 2014, with an ex-dividend date of 15 January.

Now what: Looking ahead, whilst the company anticipates continued steady improvement in the economic situation, it warns that “the problem of little or no growth in real earnings looks set to persist for some time” and that the likely rise in interest rates that would accompany any return to significant economic growth will moderate the spending of mortgage-paying consumers.

At 6,060p, Next’s share price is up 56% on this time last year, and almost 450% on five years ago, amply rewarding long-term shareholders.

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> Jon doesn't own shares in Next.