Next results

25th Sep '21 by Breakout Trader

4 comments 420 reads

Next (LON:NXT) are due to issue half year earnings this week (Wednesday) and I’m looking for it to finally break above this long term resistance level, having delivered a positive trading update a month or two ago.

However, I am slightly concerned at the potential impact of supply chain issues, with other companies - Nike for example - saying that they expect disruption into 2022 and impact on revenues and profits.

Is this a material risk for all companies dealing in goods, clothing etc?

Interested to hear the thoughts of other next shareholders.

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Breakout Trader

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4 comments

gus 1065

29th Sep '21

Next half year results here:-

https://www.rns-pdf.londonstoc...

Headline figures:-

Performance in the Six Months to July 2021
● Brand full price sales1 up +8.8% versus 2019 (and +62% against 2020).
● Profit before tax of £347m, up +5.9% versus 2019.

Sales Performance in the Last Eight Weeks
● Full price sales in the last eight weeks were up +20% versus 2019, materially exceeding our expectations. This compares with our previous guidance for the second half of +6%.

Upgraded Guidance for the Full Year to January 2022
● We are increasing our full price sales guidance for the rest of the year to be up +10% versus 2019.
● Forecast profit before tax (post-IFRS 16) now £800m, up +6.9% versus 2019 and +£36m ahead of our previous guidance of £764m.
● Year end net debt2 forecast at £610m, a reduction of £502m against two years ago.
● Earnings Per Share forecast to be 516.9p, up +9% versus two years ago.

Seems to be firing on all cylinders. A lot of material to digest!

Gus.

timarr

29th Sep '21

There's a very interesting section on stock level and supply chain issues. It's important to be careful in reading across from Next to other companies - for instance, their pre-Brexit preparations were exemplary but that was because they could afford to build contingency in and change things if necessary. Most smaller companies don't have that luxury.

Highlights:

On Brexit the only meaningful cost increases they've seen are due to inflated brokerage costs which they expect to eliminate through negotiations and bringing work in house. Presumably smaller companies would struggle with those, so there'll be a bit of cost inflation for most;
Stock issues - they've seen some disruption and have lower stock levels than normal but this hasn't reduced sales because, they think, they now have such a wide range of choice that they can substitute out most missing items;
Supply chain issues - future shipping contract prices for next year are already trending lower, things are generally improving;
Cost inflation - expected to average around 2.5% next year, they don't expect it to be worse than that, but nor do they expect it to reduce in the near term;
Labour - no significant issues yet but beginning to see stresses in warehouse and logistics, without a relaxation in immigration rules they expect to see a service degradation in the run up to Christmas.

Reading across to other companies - likely to be painful in the short term, but problems easing as we move into next year.

They end with a comment:

The HGV crisis was foreseen, and widely predicted for many months. For the sake of the wider UK economy, we hope that the Government will take a more decisive approach to the looming skills crisis in warehouses, restaurants, hotels, care homes, and many seasonal industries. A demand led approach to ensuring the country has the skills it needs is now vital.

Well, good luck with that. I'm doing my Christmas shopping early this year.

timarr

Breakout Trader

29th Sep '21

Thanks Gus and Timarr for your comments, certainly allays some of my concerns regarding the supply chain.

Excellent update and clearly communicated as always from Next.

The results do look good - I'm optimistic we'll get some upwards movement off the back off these, the SP has been consolidating for quite some time now.

8400 seems to be the key level to break.

peterg

29th Sep '21

Regarding labour issues, I note that they plan to introduce a mechanised packing sorter in 2023. They may well have been planning that anyway, but I dare say they are pleased to be advanced with the planning given post Brexit labour issues. And it's a further example of what you highlight, that larger companies are better placed to deal with those and related issues

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