Next shares fell about three percent to 14,475p on Friday, the day after the retailer reported first-half full-price sales up 7.7 percent, pre-tax profit up 10.5 percent to £569 million, and lifted full-year guidance by £12 million to £1.255 billion, implying 8.4 percent growth on last year. It was the fourth upgrade since January.
Both UBS, a buyer with a 16,800p target, and Panmure Liberum, a buyer at 16,000p, kept their ratings and raised earnings forecasts by about one percent. UBS noted the upgrade caught the market by surprise, since the recent oil price spike and three prior upgrades had left few expecting another beat at the half-year.
So the shares went up on the day and down the next, while the analysts revised upward. The straightforward reading is that investors had already banked the good news.
More useful than the share move are two numbers inside the brokers’ notes, because both are the kind of thing an operator can act on.
The first is 31p. That is Next’s wage cost per item dispatched from its automated Elmsall 3 warehouse in July, down from 39p two years earlier. Eight pence an item, on a business shipping at that scale, is the difference between a margin that survives a soft UK consumer and one that does not. It is also the least visible form of competitive advantage there is. No customer knows about it, no marketing budget produced it, and it compounds on every single order for the life of the asset.
Every operator has an Elmsall in miniature and most never measure it. The cost per cup of the time between order and handover. The seconds spent walking to the fridge because the milk lives in the wrong place. The shop that reorganised its bar and found its peak hour throughput up fifteen percent has done exactly what Next did, and like Next it will show up as margin rather than as anything anyone can see.
The second number is £298 against £292. That is what an international customer in their fifth year spends with Next, compared with a UK customer. Published for the first time, and it answers the question that hangs over every export push: whether the overseas buyer is a one-off opportunist chasing a discount or a customer with the same lifetime behaviour as the domestic one.
They spend slightly more. Which means the international growth is not a promotional spike, and the guidance reflects it: overseas full-price sales jumped 23.9 percent in the half and the second-half international forecast went to 20.5 percent from 14. UBS reads a long runway in that data and it is hard to argue with the arithmetic.
Panmure Liberum flagged the softer spots honestly, and they are the same ones in the results: the core Next brand in the UK went backwards slightly while wholly-owned brands and licences grew 32 percent online at home and 82 percent internationally, and the UK second-half sales forecast was trimmed to 2.0 percent from 2.8 on inflation, mortgage costs and a weak labour market.
Around 500 UK stores, an automated warehouse, and an overseas customer who behaves like a domestic one.
The share price took a day off. The 31p does not.
Source: Proactive Investors, “Next shares slip, but brokers remain bullish after fourth upgrade”
