Yahoo Finance Next remained resilient in pandemic despite pre-tax profit nearly halving
Next’s (NXT.L) profit nearly halved in 2020 compared to the year before with its stores closed for a big chunk of the year thanks to a series of lockdowns.
But the group expects profits to recover to pre-pandemic levels during the current year if there are no further restrictions and raised its profit guidance.
The company's shares were up 4% on Thursday morning.
"Next share price has been one of the retail outperformers over the last 12 months, despite being exposed to one of the worst retail environments in modern times," said Michael Hewson, chief market analyst at CMC Markets UK.
"At the end of last year, the shares managed to push above their pre-pandemic peaks of 2020, and also post new record highs at the end of January, in a narrative completely counter to the wider retail environment," he added.
The company's profit before tax was £342m ($471m), down from £729m year-on-year. Net debt reduced to £610m, from £1.1bn in the previous year.
“Our sector was facing a crisis unprecedented in living memory” said chairman Michael Roney, but added that the firm knew “our strong balance sheet and profit margins would allow us to weather the storm."
CEO Simon Wolfson said the company was "well placed to cope with the pandemic" for a number of reasons, including the diversity of its products, its presence in retail parks, and strong online sales.
In fact, in the first eight weeks of the year, online sales are up more than 60% on two years ago.
"This overachievement plus the expected transfer of sales from retail during the additional two weeks of lockdown, are expected to add £30m of profit. As a result, we are raising our central profit guidance by £30m from £670m to £700m," the company noted.
"We expect the shift in consumer behaviour towards online sales to continue for some time and one of our priorities during the year has been to continue the development of our online platform," it added.
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Given the continuing uncertainty around when stores will reopen, no final dividend is proposed for 2020/21 and Next's share buyback programme remains suspended.
Steve Clayton, fund manager of the Hargreaves Lansdown Select funds, which holds Next shares, said that "profits may have more than halved, but to be reporting any sort of profit at all as a fashion retailer after a year like 2020 is a remarkable achievement. But Next is a remarkable business."
According to Clayton, the group saw the potential of online retailing years before its rivals took it seriously. As a result Next was earning most of its money online, even before the pandemic struck.
"That has left it in a far stronger position than rivals like M&S (loss-making), or Arcadia and Debenhams (both now bankrupt). When Next does reopen their doors they will be perhaps the strongest of the survivors and Britons have saved up a lot of spending money during lockdown. We see NEXT as incredibly well positioned to generate profit and cash in the years ahead," he said.
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