High Street fashion chain Next (LSE: NXT) released first-half results Wednesday. The market appeared to like them, and the Next share price gained 4% in early trading. At the time of writing, Next is leading the FTSE 100, itself in modestly positive territory. Next is now up 33% over the past two years.
Performance in the six months to July 2021 showed increases across the board. And that compares with pre-pandemic 2019 performance, not the blight year of 2020. Total Next brand full-price sales increased by 8.8% over 2019’s figure. Oh, and they soared by 62% compared to 2020, though that doesn’t mean a great deal.
The growth in sales is pleasing, but I was more taken by the shift in sales channels. Traditional retail sales dropped 38% over the two-year period, with online sales climbing 52%. The most recent year still suffered from lockdown restrictions, so the direction of the shift was inevitable. I’m just a little surprised by the magnitude of the change.
I’ll be keen to see how much of the online migration is maintained in the coming 12 months. But I can’t help feeling a good bit of it will be irreversible, as it really is the way the sector is going.
Shift in profits
There was an even more marked change in profits. Retail actually slumped to a loss, while online profits soared by 74%. The net result was a 5.9% increase in pre-tax profit compared to July 2019. And that led to an 11% gain in earnings per share.
Next plans to return to paying ordinary dividends in the year to January 2023. In the meantime, the firm intends to pay a special dividend at the end of January 2022 to distribute any surplus cash. It comes in addition to the special of 110p per share already paid on 3 September. We should hear more in Next’s Christmas trading update.
Next share price outlook
Next quoted General William Slim as having said that “in battle, nothing is ever as good or as bad as the first excited reports would have it.” The company reckons the observation “would have been very helpful for those managing a business through the pandemic.”
The early pessimistic outlook during the worst of the pandemic crisis was overdone, and things were nowhere near as bad as feared. But the company also cautions that “it is almost certain that underlying conditions are not as good as they currently appear.”
Pent-up demand has led to a short-term uplift, which inevitably can’t last. But Next does believe its longer-term outlook is better than it’s been for some time.
Investor lesson?
I can’t help thinking Next’s lesson from General Slim is one we can apply to the wider investment world. Yes, disasters, panics, and market crashes will come along. But no, they almost certainly won’t be as bad as our worst fears. They rarely are. So when the stock market crashes, the evidence of history suggests it will be overdone. And there will be cracking bargain buys to be had.
Anyway will I buy Next now? The Next share price puts it on a lofty valuation at the moment. And I think there are better buys out there. But Next is still on my long-term candidates list.