Next’s full-year results have raised questions about whether the retailer is now an ex-growth company or if there is room yet for further expansion.
A company is deemed ex-growth when it has ballooned to its peak, with any further advancement in profits or sales difficult to achieve or limited in scope.
Signs a business such as Next may be ex-growth include a slowdown in revenue gains, limited expansion and investment opportunities and stable profits, with a focus on any surplus cash being dished out to shareholders.
“Next is not one for those hunting for growth stocks,” said Joshua Warner, a financial markets analyst at City Index.
“Growth began to slow in 2022 and has now peaked and this has been seen in its share price taking a hit from the peaks we saw during the pandemic,” Warner added.
Indeed, revenue growth has slowed, with sales up 8% this year compared to the 33% increase it saw in the year ending 31 January 2022. That headline figure is expected to fall by 1.5% next year.
Profits, which peaked this year at £870mln, are also forecasted to slip to £795mln when the group next posts full-year results in 12 months.
Any spare cash that Next has lying around is being returned to shareholders through dividends and buybacks, as opposed to large-scale investments to grow the company, aside from some of its bargain buying of legacy brands and scaling its online business.
Next was cash positive at £268mln before giving £228mln to shareholders through buybacks and £237mln via dividends, meaning it was in a net debt position of £197mln. A similar level of return to shareholders is expected next year.
Still room to grow
However, Next itself pointed out that there are still areas where it can grow, which would suggest it is viewed as far from ex-growth, at least internally.
Next said it plans to continue adding acquired brands Jojo Maman Bébé, Made.com and Joules to its online service for third-party brands which it calls its Total Platform.
One would expect Cath Kidston, which it purchased on Wednesday for £8.5mln, will also join the service in due course, opening up additional revenue streams and diversification with bolt-on acquisitions that require minimal investment.
Additionally, it said it is “established but not standing still” on its core Next business in the UK, stating “new avenues of growth are proven, but at the early stages in their development.”
Next claims it is “far from running out of ideas,” and plans to do more in product design, e-commerce growth, and customer recruitment and retention driven by website traffic, online conversion, and higher sales per customer.
It argues that while the market share of its core business suggests exceptional growth is unlikely, it is far from reaching saturation, with the brand accounting for less than 10% in most of its key markets, such as women’s clothing and home here in the UK.
As John Stevenson, a retail analyst at Peel Hunt puts it, “this is essentially a year of consolidation.”
“If you look at how much the business has grown throughout the pandemic, that requires a serious level of investment,” Stevenson said.
He argues that what was reported today is a clear sign that the company is looking to fend off inflationary pressures and consolidate its position after years of growth since the pandemic, before “kicking on and being in a position where it can leverage those opportunities for the next four or five years.”
Growth at Next is still expected, both internally and externally, with this year viewed as an opportunity to shore itself up before powering ahead once again.