Next PLC (NXT) is a British multinational clothing, footwear, accessories and home products retailer with around 510 stores in the UK and Eire and around 200 stores in 35 countries overseas. The group is a constituent of FTSE 100 index. The group offers products through brick and mortar stores, online services as well as mail-order operations. Simon Wolfson is the Chief Executive officer; he was appointed in 2001. The total outstanding market capitalisation of the company stood at £ 7.4 bn (as on March-25-2019) and dividend yield stood at 3.07% (as on March-25-2019). 

Segments
The group has differentiated its operations in seven operating segments: NEXT Retail, NEXT Directory, NEXT International Retail, NEXT Sourcing, NEXT Finance, Lipsy and Property Management. NEXT Retail includes a chain of over 500 stores in the United Kingdom; NEXT Directory includes catalogue shopping business; NEXT International Retail segment comprises franchise and wholly owned stores overseas; NEXT Sourcing comprises products designed and sourced by NEXT; EXT Finance provides credit for customers to purchase product; and Property Management segment holds properties and property leases which are sublet to other segments and external parties.

Key Financial Metrics (FY 2019, in £m)

Source: Company Filings

NEXT Brand full price sales, which excludes VAT and markdown sales, were up by 3.1% over the year, and brand total sales rose by 2.6% to £4,124.2million, with the majority of growth driven by online sales. This was due to continued investment put in by the company to the user experience on its website and increased focus on mobile devices, which account for around 70% of customer visits and 55% of sales. Total group sales, rose by 2.5% in FY2019 to £4,220.9 million, while statutory revenue increased to £4,167.4 million. Operating profit from Retail decreased by 21% over FY2018, mainly due to the diseconomies of scale because of declining like-for-like sales of 8.5% over the year, leading to a fall in operating margin from 12.7% to 10.9%, while operating profit from online sales increased by 13.8% to £352.6 million. Profit before tax declined slightly by 0.4% to £722.9 million. Reflecting the strong top-line numbers, earnings per share reported a growth of 4.5% to 435.3p. Due to the increase in sales growth from credit customers, the company's year-end net debt increased by £94 million to £1,096 million. The total ordinary dividend announced by the company was 165p per share, an increase of 4.4% over the year.

Share Price Commentary
 
Daily Chart as at Mar-22-19, before the market close (Source: Thomson Reuters)
 
On 22th March 2019, at the time of writing (before market close, GMT 1:40 pm), NXT shares were trading at GBX 5,418, up by 1.6 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 6,224.00/GBX 3,970.00. At the time of writing, the share was trading 12.46 per cent lower than its 52w High and 36.43 per cent higher than its 52w low. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 12.2x as compared to the industry median of 10.9x. The company’s stock beta was 1.18, reflecting high volatility as compared to the benchmark index.

Conclusion
The company does not foresee any significant impact of Brexit on its operations and financials. The sales would be assisted by positive real earnings with continued strengthening expected in 2019. Employment rates have also remained strong; however, consumers are getting more conservative in their discretionary purchases, which might not augur well for the company. Though sales are anticipated to increase in FY 2019, profits are forecasted to decline. Also, consumers are increasingly moving towards online shopping, which might entail structural costs for the company. There is also the risk that the company might not be able to compete with the established online players. Keeping in view all the fundamental and economic headwinds, we recommend the investors to keep a watch on the stock at current levels.

Note- GBp or GBX are interchangeably used for Pence Sterling.

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