Next shares fell on Thursday as the retailer warned a slow UK economy could soften growth despite recording bumper sales and profit growth in its first half.
Next have done it yet again. The retailer has delivered storming profit growth during the first half of the year as a result of their online ‘artistic endeavours’, which helped boost sales.
Full price sales rising 10.9% and total Group sales increasing 10.3% to £3,249m. Pre-tax profits jumped 13.8% to £515m, whilst earnings per share climbed 16.8% to 330.2p.
“Next breezed past its original sales guidance over the first half, driven by favourable weather, major disruption at M&S and impressive international growth,” explained Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“In the UK, both online and in-store full-price sales grew at mid-to-high single digits.”
Investors will be pleased to see the company maintained its full-year guidance, expecting total sales growth of 7.5% and pre-tax profits of £1,105m, representing a 9.3% increase on the previous year.
However, the company did caution that the UK economy could weigh on growth in the near term and investors took this as a signal to book profits after a strong run for the stock so far this year.
“While Next isn’t expecting it to drop off a cliff edge, it does expect anaemic growth at best. The fashion powerhouse is clearly unimpressed by the current government’s performance, which has brought about declining job opportunities, unfavourable regulation, unsustainable government spending, and rising taxes that make it harder for the economy to grow,” Chiekrie said.
“Despite these challenges, Next is in a strong position to continue dominating the UK market. Strong demand in its online channel remains a running theme, and it’s likely to remain the main growth driver.
“It already makes up more than half of group sales, and with international expansion still in its early days, growth abroad is powering ahead — up an impressive 33%. Around 90% of its overseas business comes from Europe and the Middle East, both of which can be serviced quickly and cheaply from the UK. Given the untapped size of these markets, there’s a big opportunity if Next can execute its expansion plans well, providing the potential for upside to current full-year guidance.”
Next shares were down 5% at the time of writing.