Fundamental analysis
Next plc (the store brand is written in capital letters NEXT) is a UK-based international clothing and home decor chain. It is headquartered in Enderby, England. Next has over 500 stores in the UK and a further 200 across Europe, Asia and the Middle East. The company is the largest clothing retailer in the UK (larger than the better known Marks & Spencer chain in Europe). The stock is traded on the London Stock Exchange and is part of the FTSE 100 index.
The company itself divides its operations into three time periods.
– 1997-2017: successful years when the company grew and delivered profits to its investors through a dividend and steady share price growth.
– 2017-2024: the fall period, when the firm failed to catch the onset of online sales and adapt to new trends.
– 2024 and beyond: currently, the company is once again generating profits for both itself and its investors. The stock is up 30% for the year. The FTSE is up just 17%:
Next is now focusing on three key segments:
1. product expansion in clothing and home furnishings. With this, Next strengthens its brand and places great emphasis on the quality of its brand and its awareness in society.
2. Redesigning logistics. Redesigning the overall logistics between warehouses and stores as well as the internal logistics of individual stores and goods on the set.
3. Very strict financial discipline. The company tries to maintain a healthy margin and emphasizes cost control. It also includes appropriate rewarding of investors through dividend or share buybacks.
Results
For 2Q2024, the company beat its own revenue estimate. These rose above expectations by GBP42 million.
Full year earnings expectations were revised higher to GBP980 million, up 6.7%. This increase is due to higher sales (+ GBP11 million) and cost reductions (GBP9 million), mainly in logistics.
Technical analysis
Average volume is 800,000 shares traded per day.
The moving averages are in an uptrend. The spread is widening slightly, although there has been a price correction over the last few sessions.
The RSI is in the neutral zone, where it has fallen out of the oversold zone.
Conclusion
Next may be an interesting investment for investors looking to diversify geopolitical risk. The current strong equity market investment focus on companies doing business primarily in the US may not be suitable for everyone. Next is based in the UK and the focus of their markets is Europe and Asia. The company reports decent economic results. Its share price is outperforming the UK index. Sales expectations are rising for the rest of the year.
The company expects strong pre-Christmas sales. If they don’t materialize, overall sales may fall below expectations. This could in turn cause the share price to fall.