Next plc and this growth bargain could make you rich
Fashion chain Next(LSE: NXT) has a spring in its step this morning after reporting better-than-expected sales for the 14 weeks to 7 May. Its shares are up 7.66% after today's Q1 trading statement, putting it firmly back in fashion.
This follows a tough time for the group, which was hit hard by the consumer squeeze, Brexit uncertainty and the weak pound, which drove up the cost of imported materials. However, the fightback is well underway now, with the stock up 20% in the last six months. We told you it was a bargain.
Today's announcement showed sales £40m higher than internal forecasts, boosted by the recent warm weather. This has added around £12m to full-year profits, allowing Next to increase its central guidance for group profit.
It was not all good news, with a 4.1% drop in full-price retail store sales, as the high street continues to struggle. However, investors prefer to focus on the positives, including 18.1% increase in online sales. Growth of Next branded stock and third-party brands on its UK platform were particularly strong, while its overseas business also did well.
Back in fashion
Management previously warned that Q1 like-for-likes would be flattered by last year's underperformance, and said the rest of the year will not be as strong as the first quarter. It has, nonetheless, upgraded its guidance, predicting a 2.2% rise in full-price like-for-like sales in the year to January 2019, against 1% before, £717m in group profit, up from £705m, and a forecast 3.7% rise in earnings per share (EPS), up from 1.4%.
Cash flow remains strong and the board intends to return £300m surplus cash to shareholders via share buybacks, returning £195m so far. As wages recover and inflation slips, the future looks sunnier for Next, which currently trades at 11.89 times earnings and yields 2.8%.
High and dry
The same cannot be said for trendy clothing brand and retailer Superdry(LSE: SDY), whose shares are down a massive 15% on today's pre-close trading statement, as this time investors chose to focus on the negatives rather than the positives.
So let's start with those negatives. The group anticipates that full-year gross margins have declined by approximately 200bps year-on-year, due to "the dilutive impact of the strong growth within our capital light wholesale channel" and investments to reduce the overall carrying level of inventory. CEO Euan Sutherland also reminded investors that "the consumer environment remains challenging."
However, there are also plenty of positives, with group revenue up 16%, boosted by relative sterling weakness, and a 22.1% rise in global brand revenue to £1.6bn in full-year 2018. Underlying full-year profit before tax should range £96.5m-£97.5m, representing a further year of double-digit profit growth.
The Superdry share price has been struggling for some time but it still has its followers, including JPMorgan Cazenove, which recently praised its e-commerce, digital and social marketing strategies. And my Foolish colleague Peter Stephens reckons it will outpace the FTSE 250.
City analysts are still predicting EPS growth of 14% in the year to 30 April 2018, then 17% and 15%. With a forecast valuation of 13.5 times earnings and yield of 2.4% in 2019, today's slump could be a buying opportunity.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.