At the end of April — during the dark depths of the coronavirus crisis — I waxed lyrical about the quality of the trading statement FTSE 100 company Next (LSE: NXT) released that month.
Back then, the multinational clothing, footwear and home products retailer issued an update about how it’s was coping during the pandemic. And I thought the comprehensive explanations about actions, strategies and tactics were “wonderful”.
Why I think the FTSE 100’s Next is a stock worth owning
Reading the statement made me feel almost “present in the boardroom as the top directors discuss progress.” Indeed, the company’s pro-investor stance gives me confidence that the business is being managed with shareholders’ interests in mind.
Building on the theme, there’s an interesting statement in today’s half-year results report. Under a sub-heading of ‘Purpose and Structure of this Document’, the company said: “Our motive for giving such a comprehensive view of the company’s performance and plans goes beyond the primary task of keeping shareholders informed.”
The directors reckon they will understand the business better themselves if they provide great “clarity” about sales, finances and prospects. And the more precise and coherent they are in explaining the objectives and plans, the more likely the firm will succeed in implementing them.
Execution, they reckon, is 95% of the battle, and I couldn’t agree more. How often we see companies and organisations with plenty of ideas and instructions from top management but with little effort to follow through.
Very often, I’d argue, directors leave execution to chance. But managers need to drive policy through an organisation relentlessly from the top down. Execution doesn’t execute itself, despite many firms and organisations repeatedly trying such an approach with lacklustre outcomes.
The directors at Next said in today’s document the six-monthly reports have become more than just a means of communicating the company’s performance: “They are an intrinsic part of planning and leading the organisation.” So, not only as a shareholder can we feel like a fly on the boardroom wall, we as good as are!
Trading and stock recovery underway
In April, with the share price at 4,709p after bouncing from its lows, I was bullish. And today’s 6,276p demonstrates the continued recovery of the stock. Meanwhile, today’s figures back up the optimism of investors. Total sales in the first half of the company’s trading year to the end of July came in 34% lower year on year. But the directors said sales held up “much better” than they initially expected.
The company reckons the online business in the UK and abroad, the breadth of the product offer, and the out-of-town location of many stores all helped mitigate the worst effects of the pandemic on trade. And City analysts have pencilled in a robust earnings recovery for next year including the reinstatement of shareholder dividend payments, which the company suspended in the spring.
Meanwhile, today’s share price remains just over 12% below its pre-coronavirus level in February. Although times remain uncertain, the apparent quality of the directors’ stewardship of the business encourages me. I see it as a good reason to make the stock a long-term hold in my portfolio.