For decades British fashion giant
has been a solid performer, expanding its customer base by selling its own brand designs through its shops and e-commerce.
The stock (ticker: NXT.United Kingdom) has gained 76.8% to 80.98 pounds ($114.31) over the past year—boosted by strong performance through the pandemic and an 10% increase in online sales. But a range of fledgling initiatives could push the share price even higher.
The company, the U.K.’s biggest clothing retailer in terms of sales, sets itself apart from rivals, many of whom have gone out of business, by constantly trying new ideas.
A separate division, Label, sells popular brands such as FatFace, Nike, Ted Baker, and Adidas. Label, along with selling its own branded products overseas, is now one of the fastest-growing parts of the group. Label is forecast to generate £1.3 billion in sales for the year ahead and a 28% profit.
A smaller venture is Next’s Total Platform, which leverages Next’s online expertise to help brands such as Victoria’s Secret and Reiss to expand online sales.
The division provides services including website operations, call centers, warehousing, distribution, and returns. Next receives either a fee or a combination of a fee and a share of earnings if it takes an equity stake. It has the potential to scale this up—which could complement its core business of selling its own Next brand clothing.
Richard Chamberlain, an analyst at RBC Capital Markets, has forecast the stock could rise to £95 because it has among the most defensive and balanced exposure in the sector.
Next will benefit from a further shift of sales to online and from growth in its other sales channels, he wrote in a note. “Next should generate a higher rate of sales and profit growth of 6%, with net income growth of 7% and further strong cash generation, giving it the opportunity to enhance total shareholder returns with buybacks and/or special dividends.” The company should have a price-earnings multiple of 17 in calendar year 2022 compared with 15 today, he wrote.
Next has a market value of £10.5 billion and employs more than 25,000. Its catalog customers have migrated online, which means the retailer—with 498 stores—has generated more than half of its sales and profit through e-commerce. In addition to everyday clothing, the retailer sells shoes, sports apparel, furniture, home goods and accessories, and beauty products.
It fetches a multiple of 16.9 times this year’s expected earnings and is valued in line with its peers. It posted annual pre-tax profit of £342.4 million for the 53 weeks to Jan. 30, which, because of Covid-19 lockdowns, was half the £748.5 million the year before. Annual revenues were £3.6 billion.
“The business grows through constant innovation, a relentless endeavour to deliver new products, systems, services and ideas in a rapidly changing world,” Next CEO Simon Wolfson told Barron’s. Next evolves by testing new business ideas, maximizing the good ones, and “making sure that the less successful ones fail fast,” he says.
Next also is poised to gain customers from rivals who have struggled during the pandemic—department store Debenhams collapsed into administration, and John Lewis is closing 12 stores.
It also has expanded into suburban shopping areas that provide more parking, which has been easier for customers in the pandemic. Other initiatives include licensing, in which it collaborates with designers to offer an exclusive brand, and Platform Plus, which uses its high tech systems for Next customers to order partners’ stock directly from the partner warehouses.