The UK retail sector is struggling (to put it mildly). Consumer confidence is crumbling in the face of rising inflation, and cost pressures are also wreaking havoc for companies. Against this backdrop, FTSE 100 retailer Next (LSE: NXT) should be struggling. Indeed, every single retailer that has reported earnings this year has warned that costs will rise, and profits will take a hit as a result.
However, compared to many of its peers, the company seems to be navigating the current economic environment relatively well. Management now expects profit before tax for the current financial year to hit £850m, up 3.3% compared to last year. Earnings per share are set to receive a boost from share repurchases and rise 5% for the year.
The FTSE 100 retailer has developed a competitive moat
Next’s business model has several advantages over other companies in the retail sector. As well as the firm’s legacy business of buying and selling its own brands, the group also operates the LABEL platform. This platform stocks the brands of other retailers, generating commissions for Next when items are sold.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Next has also been developing what management has called the Total Platform initiative, which allows third-party brands to access the firm’s infrastructure, charging a fee for the service (the fee is not disclosed but the group is targeting a profit margin of 5%-7% on sales). This increases the return from existing infrastructure investments with minimal spend on Next’s part.
Sales on the LABEL platform expanded 20% in the 13 weeks to April. In comparison, Next’s own online sales slumped -24%. While the company expected this decline in own brand sales as online sales were boosted by retail closures last year, the figures show the strengths of the multi-brand offering.
Compared to the same period in 2019, LABEL sales have risen a total of 106% over three years, while Next’s own brand sales are up 23%. Total online sales over this period (including the contribution from Total Platform) rose 47% overall.
Next looks appealing in a competitive market
A few weeks ago I stated that Next’s decision to invest to become the go-to aggregator for customers would help it stand out in a crowded sector. It looks as if that thesis is now playing out.
Next is navigating the uncertainty as other retailers struggle. Notably, Boohoo (LSE: BOO), a former market darling, seems to be really struggling as rising costs and competition bite. It is also having to invest heavily to build out the infrastructure to maintain the level of service customers demand.
Retail is tough business, but in this volatile industry, Next stands out for having a plan to help it rise to the top. So far, the plan seems to be working. With the stock trading at a price/earnings (p/e) ratio of just 11.2, the shares appear inexpensive.
SEE ALSO:
Why Next is the only retailer I’d want to own in my portfolio
Don’t touch Boohoo with a bargepole – here’s what I’d buy instead
Why the cost of living crisis could be a boon for this cheap retailer
-
Trust in US TIPS to beat inflationIn an inflationary market TIPS, the US Treasury Inflation-Protected Securities are most compelling says Cris Sholto Heaton.
-
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
-
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
-
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
-
The top funds to invest in - November 2023
Tips Investors are focused on income strategies and FTSE heavyweights. We look at what investors have been adding to their portfolios in the last month
-
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
