Next H1 preview: Where next for the Next share price?

When will Next release H1 earnings?

Clothing retailer Next will release interim earnings on the morning of Thursday September 29.

Next H1 earnings consensus

Analysts believe revenue will be up 17% to £2.48 billion in the first half and that pretax profit will rise 12% to £388.3 million.

Next H1 earnings preview

Next’s blend of physical stores and online operations is proving beneficial in a tough environment. Having successfully scaled-up its online operations when stores were closed during lockdown, store sales are now growing again as footfall recovers while the explosion in online growth starts to cool.

Forecasts show Next stores are expected to deliver a 53% jump in sales in the first half, while online sales are set to drop 2.4%. Things remain choppy as pandemic-hit comparatives remain in play, with store sales coming up against weak numbers as they were closed for much of the period the year before, in turn providing strong figures for its online operation. This should start to smooth out in the second half.

Store sales, which are still below pre-pandemic levels, have grown quicker than anticipated in the first half. Next believes this is partly down to the fact it has less competition considering many high street rivals have not survived a tumultuous couple of years, leaving it with less competition. For example, the Arcadia empire that owned the likes of Topman and Miss Selfridge collapsed, while long-term anchors of many high streets like Debenhams also left forever. Those that have survived or been bought by rivals are now sold purely online.

Next has also handled a rise in return rates as they return close to pre-pandemic levels much better than its online-only rivals, which have introduced return fees as a result. Stores help in this regard, providing a cost-effective hub for customers to return items while also pushing sales online should any stock in the store be unavailable.

The differentiation of its store network is still an important part of the investment case for Next, but it should also be applauded for the strength of its online operation, which is expected to account for around 60% of revenue and boast an operating margin of over 17% in the first half. That represents superior profitability compared to online-only rivals, which have seen their margins squeezed to nothing this year.

With all this in mind, it is unsurprising that Next has outperformed its rivals despite falling almost 35% in 2022, with Boohoo down 68% and ASOS having lost 74%.

Notably, Boohoo releases interim results this Wednesday and you can find out what to expect in our Boohoo Earnings Preview. ASOS is scheduled to release annual results next month.

Still, Next is not immune to the deteriorating economic outlook. The company has warned that full price sales growth will stall at just 1% in the second half of the year as it comes up against tougher overall comparatives and a more challenging environment, having already slowed to 5% in the second quarter from 21% in the first.

There are reasons to remain nervous about the guidance for the remainder of the year. The latest retail sales data showed store sales were down 0.6% and still trailing pre-pandemic levels, while the British Retail Consortium (BRC) said online sales fell over 6%, suggesting we are starting to see consumers tighten their belts.

‘Worryingly, August data revealed a significant fall in clothing sales – the category which has been the most robust performer this year which could signal the start of shoppers pulling back from non-essential spending,’ said the BRC’s UK head of retail, Paul Martin.

‘As consumers return from summer holidays to an 80% increase in the energy price cap, double digit inflation and Christmas just three pay cheques away, the brakes could be firmly applied on non-essential spending for most UK households. The storm clouds are closing in as retailers brace themselves for a fall in demand - at a time when their own margins are under pressure from rising costs,’ Martin added.

However, Next is known for being cautious with its outlook and gradually upgrading it throughout the year. For example, full price sales came in ahead of expectations during the first half and it raised its guidance in early August when it said it was aiming to deliver 4.5% growth in annual pretax profit to £860 million. Still, there are still some that remain wary of that target, with current consensus figures pointing toward an annual profit of £849 million.

Where next for the Next share price?

Next shares have lost severe ground this year as the entire retail sector comes under pressure and currently trade at their lowest level in over two years.

However, there are signs that we are approaching a floor. The stock has been volatile today but has largely traded within a narrow band to suggest a tight battle between buyers and sellers, while the RSI is also on the cusp of entering oversold territory.

The stock briefly fell below 5,262p today before rebounding. This remains the initial floor to watch going forward as this was a strong ceiling in June 2020 and then again the following month. A slip below here could see a sharper decline toward 4,840p, which was a level of both support and resistance throughout the second quarter of 2020.

The latest leg of the downtrend can be traced back to August and breaking this with a move above around 5,600p remains the key upside target over the near term, after which it can look to recapture the 50-day and 100-day moving averages that are converging around the 6,200p mark, in-line with the September peak. The 200-day moving average then comes into play at 6,630p, which has proven to be a tough ceiling to crack on several occasions over the last six months.

The 25 brokers that cover the stock believe the selloff has been overdone this year with the average target price of 7,089.48p implying there is over 33% potential upside from current levels, although this has fallen as expectations have been curtailed in recent months.

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