18 Reasons That May Make NEXT plc A Buy

The Motley Fool

Today I am detailing why I believe sales at fashion chain NEXT (LSE: NXT) should continue heading higher should continue heading higher despite wider pressures on the UK high street.

Strong earnings growth remains in fashion

Shares in NEXT have strode relentlessly higher during the course of 2013, leaping 47% in the year to date as a steady stream of revenues growth has underpinned the firm's strong growth prospects. Indeed, earnings per share (EPS) is anticipated to punch 18% expansion in the current year, and I believe that the firm's multi-channel approach is set to drive profits higher.

Particularly encouraging for the Leicester-based firm is the stunning progress it continues to make online. Indeed, the firm's NEXT Directory internet and catalogue division reported a 10.7% sales rise during August-October, signalling growing momentum as lower growth of 9.2% was punched for the nine months ending October.

Indeed, strength here helped to drive group brand sales 4.3% during August-October and 3% northwards in the fiscal year to date. The business has invested heavily to build this division, a move that helped to drive new customers 12.1% higher alone in the first six months of the year, to 3.6m. And the website is also helping to drive sales growth in international markets, with 2.9% of the 8.3% growth NEXT Directory reported in February-August put down to activity overseas.

October's promising results caused the retailer to once again raise its guidance for the current year, and NEXT now expects sales of its own-brand goods to rise between 2% and 3.75% in the 12 months ending January 2014, up from the prior projection of between 1.5% and 3.5%. This is foreseen to drive profit before tax 4.6% to 9.4% higher, a significant upgrade from the prior guesstimates of between 2.2% and 8.6%.

And NEXT upped its EPS growth guidance for this year to between 15% and 21%, up from between 12% and 19% previously. These revised figures in line with broker forecasts for an 18% EPS improvement for 2014, to 335.2p. And the City expects a further 8% increase to transpire in 2015, to 362.7p.

NEXT currently deals on a P/E rating of 16.4 and 15.1 for 2014 and 2015 respectively, far in advance of a prospective reading of 14.8 for fellow clothing outlet Marks & Spencer and 9.8 for Debenhams. Still, in my opinion NEXT is deserving of this higher rating due to its exceptional record of double-digit growth in recent years, and the firm is in great shape to deliver further heady growth in coming years.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in Debenhams.