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Next unveils fourth profit upgrade for its financial year

by LLB Editor
5th Jan 21 11:21 am

The announcement of new, stringent lockdowns in England and Scotland may provide a gloomy backdrop to its results announcement but Next’s fourth profit upgrade for its current fiscal year goes a long way to explaining why the retailer’s shares are higher than where they were a year ago, despite everything that has happened in the meantime, says Russ Mould, AJ Bell Investment Director.

“Granted, the upgrade is relatively minor this time, at just £5 million to £370 million but the forecast of a £670 million profit for the financial year to January 2022 is 5% higher than the current analysts’ consensus forecast for good measure.

“November’s lockdown has slowed the pace of both the upgrades and the recovery in Next’s share price, but the company continues to surprise on the upside thanks to the combination of better-than-expected full price sales, especially online, lower-than-expected returns and good cost control, where store closures and rent renegotiations have both been key features.

“The outlook for the new financial year contains even more variables than normal, including Brexit, the new lockdowns and the ongoing chaos in the global container shipping market which is impacting the availability of stock.

“Assuming that all physical stores remain closed through to the end of March, Next puts the cost of the new lockdowns at £40 million of profit (with online sales picking up around half of the slack), although management offers reassurance about Brexit, noting its new systems are up and running and no additional customs duties are expected to affect margins or pricing.

“The forecast of £670 million in profit represents a big recovery from the year to January 2022, although it would still mean earnings come in below the pre-pandemic year to January 2020, when pre-tax income reached £729 million.”

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