Next Q1 earnings preview: Where are Next shares headed?

Next shares will come into focus when it releases its first-quarter update later this week, with investors hoping the retailer has seen an encouraging number of customers return to its stores since they were reopened and that the strong growth in online sales has continued.

Charts (1)

When will Next release its Q1 results?

Next will release its first-quarter results on Thursday May 6.

What to expect from Next’s Q1 results

Next has been one of the most resilient retailers during the pandemic, as years of investment into its online operations paid off and allowed it to capitalise on the shift to online shopping and cushion the £500 million in lost sales from having its stores closed during lockdown.

Online sales already accounted for around half of total sales before the pandemic erupted and the extraordinary growth seen since meant total sales were down just 15% in the last financial year to the end of January 2021. Additional costs meant the impact of the coronavirus on earnings was more extreme, with pretax profit more than halving to £342.0 million from £728.5 million the year before.

However, with online sales growth showing no signs of slowing down and its retail stores having reopened across the UK last month, Next is expecting sales to return to pre-pandemic levels in the current financial year and for pretax profit to come in between £670 million to £700 million – only 4% shy of what it delivered two years ago.

Investors will want to see evidence that customers have eagerly returned to stores since the doors were reopened but that its online offering has sustained the momentum built up over the past year. Next already bumped up its profit guidance for this year by £30 million after online sales in the first eight weeks of the new financial year were ahead of expectations and up over 60% compared to two years ago, and numerous other UK retailers have seen encouraging numbers of customers flock back to their shops in recent weeks – both of which bode well for Next.

Keep an eye on the outlook. The guidance provided by Next for this year provides a tight range. Its downside scenario sees a 3% fall in full price sales and pretax profit of £645 million this year while the upside would see a 3% rise in sales and profit of £745 million.

There could also be commentary on when shareholders could see dividends and buybacks reinstated. With stores having only just reopened and the outlook still highly uncertain, Next is likely to play it safe when it releases its first-quarter results and wait until later this year, possibly at its interim results, to provide a solid timeframe. It is prioritising reducing debt at the moment but has said it would have enough headroom to remain comfortable if it does decide to restart payouts later this year.

Where next for the Next share price?

Next has trended higher across the pandemic from the mid-March low hitting resistance at 8370 the all time high.  

The move higher has lost momentum over the past few weeks and is currently testing the ascending trendline whilst also trading on its 20 & 50 EMA. Next is trading with a more neutral bias as investors await results later this week.  

The price has been capped on the lower side by 7750 in recent weeks. So, sellers could look for a break down below 7750 for a deeper selloff towards 7300. 

On the other hand, buyers could look for a firm move back over the ascending trendline, the 50 EMA and 8370 for a post earnings break out trade towards 8500 round number. 

How to trade Next shares

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  3. Choose your position and size, and your stop and limit levels
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