Thursday, 19 March 2015

NEXT - Full Year Results

This FTSE 100 retailer was added to my ISA portfolio in October 2013 and so far it has been one of my more profitable acquisitions.

The retail chain was only launched in February 1982 and the first store opened with an exclusive coordinated collection of stylish clothes, shoes and accessories for women. Collections for men, children and the home quickly followed. NEXT clothes are styled by its in-house design team to offer great style, quality and value for money with a contemporary fashion edge.

Today NEXT trades from 540 stores in the UK and Eire and almost 200 stores in more than 35 countries overseas. The only significant new territory launched in the past year was China.  Sales started slowly but are now exceeding expectations and the Company say that China will shortly become a top ten trading territory.

Online shopping was introduced in 1999 and the entire book became available to shop from on the internet, page by page – another first in home shopping in the UK. NEXT Directory now also serves customers in around 60 countries outside the UK. They expect international online sales to grow by 25% in the year ahead, to around £205m.

Results

They have today reported results for the full year to 31st January 2015. Sales for NEXT Directory increased by 12% and NEXT Retail by 5%.  Total Group sales rose 7% and reached £4 billion for the first time. After the upbeat trading statement in December, it is little surprise that the figures are at the top end of forecasts with pre-tax profits rising 12.5% to £782m (2014 £695m). 

As a result of share buy backs, earnings have risen 14.7% to 419.8p (2014 366p) per share supporting a full year dividend of 150p (2013 129p). Dividend cover is maintained at a healthy 2.8x earnings. The Company have also returned an additional 150p to shareholders by way of special dividends. This will be the 6th consecutive year that earnings and dividends have increased by more than 15% - quite an achievement and of course good news for income seekers.

The share price has advanced some 14% over the year and the board have decided continue to return excess cash to shareholders by way of special dividends - 50p was paid last month and a further 60p to come in May in addition to the 100p final dividend. 

Furthermore, they have reviewed their financial objectives and now include the value of returning cash to shareholders. The restated aim includes the objective as the delivery of long term, sustainable growth in Total Shareholder Returns (TSR). TSR is defined as growth in earnings per share added to the total dividend yield. TSR over the past year was 19.3%.

The outlook for the coming year is slightly less positive than the previous year with forecast profits of between £785m - £835m and TSR of between 6% - 12% . The management are masters at managing expectation!

There is little doubt the year to January 2015 was another good year for NEXT. However, the forecasts for the coming year seem to be a little lower than analysts were anticipating and in early trading the share price was down over 4% at £73.00.

This is a very well run organisation under the stewardship of CEO, Lord Wolfson. I am happy to continue holding.

7 comments:

  1. Hi John

    No doubt a great business at the moment, but it's just too pricey for me. I realise they're growing quickly but I hate to rely on growth alone, and with a sub-2% dividend yield that's pretty much what investors are doing.

    However, hopefully from your perspective I'm wrong and you're right!

    John

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    1. John,

      Thanks for your comment.

      When I purchased just 18m back the price was around £49 - it had been on my watchlist for 2 yrs before that and I watched the share price climb from around £25 with few dips to provide an entry point.

      Obviously I am more than pleased with progress since purchase and I topped up my holding last year. Whether it still offers good value now is a question each prospective purchaser must decide for themselves.

      You say sub 2% yield but with specials, the yield was over 5% last year and the likelihood is of a further 230p in specials this coming year and 160p+ regular dividend, the yield will be in excess of 5% again.

      P/E at just over 17 is fairly reasonable for such a quality company, low debt, great return on equity, astute management delivering good returns for shareholders - can't argue with 6 consecutive divi increases of 15%+.

      Yep, this is a top three weighting in my shares portfolio and happy to hold long term.

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    2. I agree. Next is an incredibly well managed company with a clear and competent plan for growth which is also continuing to provide tangible results. It has perpetually been on my watchlist but always been a little highly valued for me.

      One day hopefully I will be moved to add it to my portfolio...one day! As you say, it does not throw up many price dips sadly. Crossed fingers one does come sometime soon.

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    3. DD,

      Thanks for stopping by with your thoughts.

      I would be interested to learn what price you would consider it to be good value. We all want a bargain but as you are probably well aware, the market is very efficient!

      Next will be paying out another 60p sp divi in May, a 100p final in August when I expect them to also pay a further 60p special - so 220p which would represent a 3% cushion for new buyers. I really don't expect much downside/dips for a while.

      Hope it makes it into your portfolio...one day!!

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    4. Thanks for the reply. Much appreciated.

      I think you're right about the dips not looking likely anytime soon. Even if you for some reason had a downer on Next you would hold on until well into the year even if only for the dividends as you point out. But it is not clear why you would have a downer on it!

      Below 7,000 I think I would start thinking seriously about it again. That would give it a predicted P/E of about 17.5.

      Anything below 6,500 would also be very appealing. However, it was trading at that for most of last year. At that time I was not seriously looking at a retail investment and was a little turned off by the high debt to equity levels. Otherwise I would have certainly picked up some!

      If the debt load was reduced a little I think I may have already invested. That was my chief concern at the time.

      We will see! Maybe I will join you as a shareholder sometime soon.

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  2. Next is a company I wish I had invested in 10 years ago. Of course I would have reinvested all the dividends and dear knows what my holding would be worth right now. Unfortunately I have missed the boat with this one. I could never afford the £72.85 per share, well I could but I would not be buying too many of them.

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    1. Laura,

      Thanks for dropping by with your comment.

      Hindsight is a wonderful thing - there are many companies I wish I had bought 10 yrs back! However, so far as Next is concerned, do not let the price per share put you off - if you do your research and you think it would make a good long term investment then its probably worth the investment, even if you only purchase say 10 shares.

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