Next's first-half 2024 results: key insights for investors

Next's Q2 2024 sales performance exceeds expectations

Next's second quarter (Q2) 2024 sales figures have surpassed company projections, painting a positive picture for investors. The retailer reported a 3.2% increase in Q2 full-price sales, outperforming its own expectations by £42 million.

These figures demonstrate Next's resilience in a challenging retail environment. The company's ability to exceed its own forecasts suggests effective inventory management and pricing strategies.

Investors should note that this outperformance could potentially lead to further upward revisions in the company's full-year guidance. This trend of consistently beating expectations has been a key factor in Next's recent share price performance.

Those considering investing in Next might want to explore opening a share dealing account to gain exposure to the company's stock.

Key drivers of Next's Q2 2024 performance

A standout feature of Next's Q2 performance is the surge in overseas online sales, which grew by over 20%. This impressive growth highlights the success of Next's international expansion strategy and its strong e-commerce capabilities.

However, the UK market presented a more challenging picture. Combined in-store and online sales in the UK remained flat, reflecting the ongoing pressures on domestic consumer spending.

Next's balanced omnichannel approach has proven crucial in navigating these varied market conditions. The company's early adoption of e-commerce has positioned it well to capitalise on the shift to online shopping, particularly in international markets.

Investors should consider how Next's diverse product range, spanning fashion and homeware, contributes to its resilience. This diversification helps mitigate risks associated with fluctuations in specific product categories.

Next raises full-year profit guidance

In a move that has buoyed investor sentiment, Next has raised its full-year profit guidance by £20 million to £980 million. This represents a 6.7% year-over-year (YoY) increase and reflects the company's confidence in its future performance.

The upgraded guidance is based on two key factors. Firstly, Next anticipates £11 million in additional sales for the remainder of the year. Secondly, the company expects to realise £9 million in cost savings, primarily from improvements in logistics operations.

This upward revision in profit guidance is particularly noteworthy given the current economic uncertainties. It suggests that Next's management team has a strong grasp on the company's operations and is effectively managing both top-line growth and cost efficiencies.

Investors should pay close attention to any commentary from management regarding potential further revisions to this guidance during the earnings call. Additional upward adjustments could serve as a catalyst for share price appreciation.

Analyst sentiment and stock performance

The analyst community has responded positively to Next's recent performance and updated guidance. Many analysts have noted the company's consistent ability to outperform expectations, which has contributed to a generally bullish sentiment.

According to London Stock Exchange Group (LSEG) Data & Analytics fundamental analysts are rating Next as a hold with 2 strong buy, 2 buy and 15 hold. Their median price target is at 9346.39 pence (p), roughly 11% below the company’s current share price (as of 17 September 2024).

This positive outlook is reflected in Next's recent share price performance. The stock hit an all-time high of 10,500p ahead of the Q2 results announcement, representing an 30% year-to-date (YTD) increase. This compares favourably to the Financial Times Stock Exchange (FTSE) 100's 8% rise. This outperformance underscores investor confidence in Next's business model and growth prospects.

However, potential investors should be aware that past performance does not guarantee future results. It's crucial to conduct thorough fundamental analysis before making investment decisions.

Key strengths and potential concerns for Next

Next's key strengths lie in its early adoption of e-commerce, balanced omnichannel strategy, and strong brand recognition. The company's diverse product range across fashion and homeware categories provides resilience against sector-specific downturns.

However, investors should also be aware of potential concerns. Next carries a substantial debt load of £890 million, which could become more burdensome if interest rates continue to rise.

The company's performance is also closely tied to consumer spending, which remains uncertain in the current economic climate. Additionally, the retail sector is highly competitive, with constant pressure from both traditional rivals and e-commerce disruptors.

These factors highlight the importance of monitoring both company-specific developments and broader economic trends when considering an investment in Next.

Technical analysis on the NEXT share price

The Next share price keep on making new record highs and is fast approaching the psychological 11,000p mark. It is currently on track for its second consecutive month of gains, having risen by a staggering 139% from its October 2022 low. In less than three months, the Next share price has risen by over 20% alone.

Next monthly candlestick chart

The medium-term uptrend will remain valid as long as the early September low at 9784p holds on a daily chart closing basis. Support above this level can be spotted around the late August high at 10,215p.

Next daily candlestick chart

Shareholder returns and valuation

Next has demonstrated a commitment to shareholder returns through its ongoing share buyback program, which allows for repurchases of up to 14.99% of issued capital. This program can potentially boost earnings per share (EPS) and signal management's confidence in the company's future prospects.

The company currently offers a dividend yield of 2.4%, which may be attractive to income-focused investors. Given Next's strong performance and raised guidance, there could be room for dividend growth in the future.

From a valuation perspective, some analysts suggest that Next is trading approximately 14.8% below its estimated fair value based on discounted cash flow analysis. This could indicate potential upside for the share price if the company continues to perform well.

However, investors should conduct their own valuation analysis and consider multiple valuation methods before making investment decisions. It's also crucial to factor in the broader economic environment and sector-specific risks.

As Next prepares to release its first-half (H1) 2024 results, investors will be keenly watching for any signs that the company can maintain its strong momentum. Particular attention will be paid to any comments on the outlook for the second-half (H2) of the year and potential further revisions to full-year guidance.