Next has reported FY14

Next has reported FY14 results at the top end of guidance and is now more positive on FY15 than it was in January. Initial guidance is for PBT of £730m-£770m (+5% to +11%) and with consensus at the bottom end of this range, we expect market forecasts to nudge up. We will review our numbers post the analyst meeting. We view NEXT as a core holding, but with the shares valued at a premium to the sector, we believe the valuation is up with events.

Reported 11.8% growth. FY14 PBT to £695m (guided to £684 to £700m; we had £698m; BBG consensus was £691m). DPS is raised by 23% to 129p. A special dividend was paid in February & the company has already announced another 50p payment in May.
Directory main driver. Retail EBIT £347.7m (+5%) vs our forecast of £356m. Directory EBIT £358.5m (+18.7%) vs our forecast ofr £353m.
FY15 guidance raised, so we would expect consensus to nudge up. Management is guiding for Brand sales +4% to +8% with PBT £730m-£770m (+5% to +11%). This compares to early guidance in January of NEXT Brand sales 3% to 7% and PBT growth in-line. We had forecast FY15E PBT of £735m with consensus pre today’s update for PBT of £741m, EPS 377p.
Outlook steady – Lord Wolfson comments that the economic conditions are expected to modestly improve though conditions are likely to remain far from buoyant and there is a real risk to sustainability of current recovery.
A core holding – Next’s success is down to being run as a seamless multi-channel business, the pursuit of marginal gains in its offer, service and efficiency and focus on total shareholder return. However with the shares likely still trading on CY15 PE of over 17x (sector 16.3x) and growth forecast to slow, we believe the valuation is up with events. We will review our forecasts and EV/EBITDA-based TP, but maintain our Hold.