Earnings

Will Next’s share price benefit from retail therapy?

Next’s [NXT] share price is in recovery mode. Having hit a 52-week low closing price of 3,390p on 3 April — a seismic 52% drop from its 21 February close at 7,078p — the stock has been making up ground ever since. 

Of course, Next’s share price losses can be racked up to the coronavirus pandemic that saw the retailer shut up shop at the height of lockdown. With lockdown continuing to ease and more shoppers heading out to the nation’s high streets, however, Next is now trading around the 6,100p level. 

Will upcoming half-year results further boost Next’s share price recovery? 

 

 

When does Next publish its first-half results?

17 September

 

What clues does Next’s Q2 update provide?

Next’s Q2 sales showed a decline of 28% versus the same period in 2019, which was actually “much better than we expected and an improvement on the best-case scenario in our April trading statement”, according to Next’s Q2 trading update in July. The figures were helped by its online and warehouse areas returning to normal levels of activity. The better-than-expected sales boosted Next’s share price, which climbed from 5,262p to close at 5,666p on 29 July. 

The figures revealed that same-store sales, unsurprisingly, dropped by 32% but on the brighter side, online like-for-like sales did make a gain of 9%. Sales of full-price clothing fell a huge 52% in the three-month period from the end of January to the end of April.

52%

Drop of Next's full-price clothing sales end of January to end of April

 

In the second half of the year, expectations will be that Next enhances the picking capacity of its warehouse operations in order to improve its online business, and in particular its delivery times. If the retailer can show that it’s adjusting its strategy in response to the pandemic, Next’s share price could see a post-earnings bounce. 

 

How could the results affect Next’s share price?

In January, Next said it expected pre-tax profit to come in at £734m for 2020, but that was before the coronavirus pandemic forced the UK economy to lock down. Unsurprisingly, Next updated that forecast significantly in its July update, with annual profit-before-tax expectations revised to come in at £195m. 

Will recent trading activity persuade Next’s board to positively revise its full-year forecast? If so, Next’s share price could get a nudge in the right direction.

£195million

Next's forecasted annual profit before tax

 

What does Next’s insider trading activity reveal?

Over the last year, the sole insider sale was by CEO Simon Wolfson, for £10m worth of shares at an estimated £66.05 per share. Though this is a big sale, the fact it took place close to the current price rather than at a lower price means it's not especially concerning. 

Next insiders owning around 1.3% of the company is positive according to Simply Wall St, "because it increases the chances that management are thinking about the best interests of shareholders".

 

What do the analysts think of Next’s share price?

Data from the Financial Times reveals that the 17 analysts with 12-month forecasts on Next’s share price have an average price target of 5,500p, with a high estimate of 6,500p and a low estimate of 3,650p. Hitting the average price target would see a 9.92% downside as of 15 September’s close. 

Analysts’ recommendations on the stock are a mixed bag, with 3 Buy, 5 Outperform, 8 Hold, 4 Underperform and 2 Sell ratings. Both the average price target and the stock’s majority Hold rating are reinforced by Morningstar’s quantitative equity research, which has a 3-star ‘fairly valued’ rating on Next’s share price, with a fair value price of 5,600p.

 

Market Cap$8.518bn
PE ratio (TTM)13.06
EPS (TTM)468.80
Quarterly Revenue Growth (YoY)2.1%

Next share price vitals, Yahoo Finance, 16 September 2020

 

So, time to buy?

Next’s share price has staged a strong recovery from its steep decline in the spring, rising 69.14% from its YTD low in April (through 15 September’s close). The latest results should reveal whether the retailer has revised its annual profit expectation, or further progress in its online business.

A positive update could prolong Next’s positive momentum, but there’s some way to go before it reaches December 2019’s 7,000p level.

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