Almost £600mln has been wiped from the value of Next PLC (LON:NXT) following the interim results statement.
The trigger was the outlook statement. For while the heatwave has provided a boost, it is likely to be short-lived, the clothing retailer said.
Cue the scramble for the door as investors booked a profit on an investment that had appreciated around 48% in the last 12 months.
Here at Proactive, we are glass-half-full kind of people, so we’ve come up with five reasons to be cheerful rather than fearful.
1. Hero of High Street rather than victim
Next is not Debenhams or House of Fraser. That’s obvious. What is meant by that is Next isn’t a distressed victim of the wholesale carnage on the High Street that has forced the two department store chains into a round of closures - and in the case of HoF pushed it cap in hand towards Sports Direct supremo Mike Ashley for a bail-out.
2. Mastered the internet
The company has managed the migration from offline (sales via shops) to online better than many of its established competition. Marks & Spencer, for instance, has really struggled in this regard. Next started out with the Directory (the old catalogue business) and now has a booming internet business that grew by 15.5% in the 28 weeks to July 28. Is its online offering ever going to compete with ASOS (LON:ASC), or Bohoo.com (LON:BOO)? It’s unlikely, and actually unfair as these new kids on the block are targeted at the fast-fashion youth market, where Next has a greater demographic reach. Online last year was 47% of Next brand sales, and at just under £1.9bn, matched ASOS’s total annual turnover.
3. Robust performance
The numbers reveal Next’s had a robust performance. And while the company isn’t raising its profits forecast for the year, a number of the outliers are lifting their numbers on the back of today’s statement. And it should be pointed out, Next has a habit of under-promising and over-delivering. One suspects it is holding a little back, just to ensure it hits its targets.
4. Cashed-up and able to invest
Full-price sales are up, stock levels are down and the competition is struggling. It is in a strong cash position which allows Next to invest while its department store rivals, in particular, are cutting costs to bone.
5. Decent value?
The current valuation isn’t particularly taxing. At £55 a share, the retailer is trading on a forward price-to-earnings multiple of around 12.5-times 2019 EPS. It’s not bargain-bucket, but neither is it the designer rail at Harrods. Currently, analysts value the stock at £60-£66, giving some headroom for price appreciation at current levels.