Analysts have applauded Nexts first-half performance

Analysts have applauded Next's first-half performance

Against an improving economic backdrop, and its strongest first-half sales increase for many years, Next Plc continues to excel. Although analysts have applauded the latest set of results, questions remain over how long the UK apparel retailer can maintain double-digit earnings growth for. 

Conlumino analyst David Alexander:
"Of course, Next's growth is unlikely to continue at such lightning pace indefinitely and these performances will lead to tougher comparatives going forward, but it has not just ridden the tide of favourable currency conditions, fine summer weather, less general discounting in the highstreet and an improving economy and housing market. In fact its growth owes much to sound strategic planning and a critical mindset from senior management that has allowed it to learn from its mistakes and quickly stamp them out."

"Next is nothing if not bold and its success if anything goes to prove Del boy's mantra that "he who dares wins". It may come to pass that the prospect of interest rate rises and less favourable weather conditions will put a curb on consumer spending in the months to come, but if any retailer looks well-positioned to carve out a share of that spend, it is Next."

Bernstein Research analyst Jamie Merriman: 
"Overall, this is another strong set of results from Next with circa 19% PBT growth and circa 22% EPS growth in H1, given improved levels of growth in Retail, operating leverage in stores, continued growth of UK Directory, and expansion of overseas Directory. Importantly, topline growth in existing stores Retail provided operating leverage over fixed costs in stores, and was the most important driver of margin expansion in H1. That said, Directory margins contracted and we believe they are near peak. As such, we believe Next will be under increased pressure to grow the top line and achieve operating leverage to be able to maintain double digit earnings growth."

Investec analyst Alistair Davies: 
"Against lofty expectations, Next has had a stellar first half, but numbers are a little short of consensus (GBP5m at a profit before tax (PBT) level) with GBP339m of EBIT and GBP324m of PBT. Within the numbers, Retail had an exceptional H1 - the strength of full price sales (+8.6%) having a key role in improving the EBIT margin by 180 basis points. Directory EBIT rose 10.2%, but we note a 130 basis points decline in the operating margin with higher levels of advertising and change in sales mix all having a dilutive EBIT margin effect."

Cantor Fitzgerald analyst Freddie George: 
"Following this update, we are retaining our FY15 pre-tax profit forecast of GBP805m (EPS: 387.5pence) although we believe the company is currently tracking ahead of this forecast.

"We are retaining our BUY recommendation for the following reasons. 1) Over the last five years, Next's EPS has grown by 17.7% p.a. helped by positive momentum from the Directory, which has achieved 18.1% p.a. growth in trading profits over this period. 2) The valuation of the Directory, following recent IPOs is not, in our view, properly reflected in the Next rating. The Directory will continue to benefit from growth in the on-line market, an increase in customer numbers, a broadening of the ranges and the opportunity to develop overseas. 3) These drivers coupled with the opportunity for the group to use its cash flows to buy-back shares and pay special dividends will continue to lead to improvements in return on invested capital (ROIC) and shareholder returns."

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