Next shares rally despite toughest time

These are tough times for Next (NXT) and there are some unfortunate echoes from the same statement last year.

The repetition of errors, stock mismanagement and a continued move away from clothing spending by consumers have been compounded by a squeeze on real incomes and increasingly intense competition within the sector.

Some of these factors are beyond its control but, equally, Next has made some “self-inflicted” mistakes which are all too evident in the numbers.

Pre-tax profit has fallen 8%, earnings per share is down almost 6%, Retail sales are 7% weaker and net debt has risen. Meanwhile, and perhaps not surprisingly given this performance, the outlook for the company is cloudy and the general economic environment will continue to provide headwinds.

In the midst of this turmoil, there may be some grounds for optimism. Next has listed a whole host of potential improvements to its offering, from an attack on costs, a redesign of its distribution, through to concession expansion and even the particular detail of personalising certain products.

In the meantime, the Online business is something of a ray of light, with sales up 11% (and overseas increasing by 25%), whilst the company’s capital strategy remains admirable, with its strong cash flow enabling share buybacks and special dividends where appropriate, in addition to the current and attractive dividend yield of 3.9%.

Source: interactive investor          Past performance is not a guide to future performance

The share price reaction is a brief respite to the company’s woes, and adds to the 19% increase over the last year, as compared to a 5.3% dip for the wider FTSE 100 (UKX). There is, however, a great deal of light between today’s price level of around £47.50 and the heady heights of £80 it reached in October 2015.

Next has given itself a mountain to climb over the coming year and it remains to be seen whether the improvements are achievable. In the meantime, the market consensus of the shares as a sell may reflect the fact that there could be better value elsewhere in a rapidly changing marketplace.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company’s or index name highlighted in the article.