As a retailer, shares in Next (LSE: NXT) were among the hardest hit when the coronavirus closed down large parts of the UK economy. Shops were shut and even the online operation halted as employees felt unsafe working in close quarters in the logistics operation. And of course, the stock market crashed.
With the shares recovering from a battering along with the rest of the market, I think if the stock market crashes again, this quality business will become too cheap to ignore.
It was all going so well
Retail is a difficult industry, even before the coronavirus and especially now. A lot of shopping is moving online and many consumers are comfortable buying clothes on ASOS and Boohoo. Against this fierce competition, Next is able to hold its own.
In January, before anyone had heard of Covid-19, Next released results showing fourth-quarter sales were up. This was driven by a strong sales rise online. The group was predicting pre-tax profit of £734m, ahead of analyst’s forecasts of £729.3m.
A changing picture
The coronavirus has changed the rosy picture of the omnichannel retailer holding its own in a fight against digital-only challengers.
From 26 January to 25 April, retail sales were down 52% and online fell 32%. In the three days before stores were closed on 23 March, sales were down 86%.
At the end of April, Next revealed sales had fallen faster than it modelled in the stress tests that it completed in March. The retailer now believes the coronavirus will impact the business for longer than it first thought.
In better news, in a good sign that Next’s online offering is still popular, it had to halt the website when it reopened, such was the demand. Capacity is expected to be back at 70% of normal levels by mid-May.
Next shares a buy if stock market crashes?
Understandably, there’s a lot of reason to be nervous about buying a retailer right now, especially one that isn’t digital-only. But it’s good to buy when others are fearful and so I’d be tempted to grab the shares if there’s another market crash.
Next is doing a good job with its online offering, unlike many other old-school mainly-store-based retailers.
It has a fantastic record of delivering for shareholders. Over the last 10 years, the share price gain has been over 125% and of course, during that time, investors would also have got dividends. Group sales have increased from £3,758m in 2014 to £4,229m in 2019.
Over the same timeframe, profit before tax rose from £695m to £723m and the dividend from 129p to 165p.
The quality of its management sets Next apart. It’s superbly well run with management that has delivered for shareholders. CEO Lord Wolfson is the longest-serving boss among those running FTSE 100 companies.
All in all, I think the quality of the business an management would tempt me to buy shares in Next, if the stock market crashes again. I think it’s a great FTSE 100 company.