The Investment Column: Next rewards investors in style
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Your support makes all the difference.WHAT A difference a year makes. Twelve months' ago shares in Next, the fashion retailer, were languishing at 352.5p, their lowest point for four years, after a profits warning in the spring related to buying mistakes.
At that time the board underlined their confidence in the group's recovery potential with heavy share buying at 370p each. Investors who followed suit will have been rewarded handsomely.
The company was back on track yesterday with a huge bounce in profits from pounds 50m to pounds 68.4m. The mystery was Warburg Dillon Read, Next's broker, reducing its stance on the stock from "buy" to "hold" even though it upgraded its full-year profits forecast to pounds 187m. This caused the shares to dip 36p to 682p, still double their level a year ago.
Next has addressed the merchandise problems of last year, when it stocked too many high -fashion items and not enough classics. Internal controls have been strengthened.
Next's strength is its simplicity. It has one brand and just two major legs to the empire, the high street shops and Directory, its catalogue business. Some might say its management has a tendency to be over-cautious, which may be a reaction to the gung-ho days of George Davies.
Next has pulled out of a small experiment in the United States and its remaining interests overseas barely merit a mention. But none of this worries David Jones, the chief executive. He reckons there is still plenty of scope to expand in the UK and no need for another element to the business.
His confidence is based on a strong performance in the high street business where profits improved from pounds 25m to pounds 39m. Like-for-like sales in current trading sales are up by 4 per cent, which may look very good when other fashion retailers start reporting over the next few weeks.
If there is a concern with Next it is over the Directory. The catalogue market is competitive and the Directory's sales were flat, though profits were up by 20 per cent as the group cut back on marketing.
On a forward p/e of 19 the shares are not expensive though Warburg's stance is a concern. Still a solid hold.
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