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The 15% gain for the Next (LSE: NXT) share price in October showed what a commanding force the company is on the UK high street. It was backed by an impressive set of third-quarter results.
The update on 29 October was enough to boost the shares more than 8% on the day, though they’ve fallen back a little since then. With Next stock up over 50% in 2025, I expect there was a bit of profit taking.
Standout
There was a key standout in the latest results for me. Next is lining up a special dividend to be paid at the end of January. It needs finalising, but the board expects it to be about 310p per share. Next isn’t a big dividend payer, but that represents approximately 2.2% based on the share price at the time of writing. The update also confirmed an interim dividend of 87p.
The new payment is based on an estimated £369m cash surplus. Next has already returned £131m to shareholders by way of share buybacks this year, so we might expect more of that. But the update made it clear that “our share price is currently much higher than our buyback limit.”
I do sometimes see company boards engaging in buybacks when I don’t think the shares are especially good value. So that more conservative approach works for me.
The quarter saw full-price sales smash through previous guidance of a 4.5% rise, hitting 10.5%. Overall, Next comfortably beat expectations. And the company lifted its Q4 full-price sales guidance to a 7% increase, up from 4.5%.
Valuation
Though I like the special dividend approach, it does raise one concern. If the Next share price is currently “much higher” than the board would repurchase the shares at, does that mean it’s too rich for individual investors too? I’m really not sure it does.
We’re looking at a forecast price-to-earnings (P/E) for the current year of 20. That’s a fair bit above where it’s been in recent years. I reckon it makes sense to hold off from any further buybacks for now.
But forecasts for a few years of solid earnings growth would drop the P/E to about 17.5 by 2028. Is that too high? I don’t think it is, though it brings up some clear risks.
High street
The retail business in general might be recovering. But it’s still not exactly racing ahead. High inflation, high interest rates, soaring energy bills, fears for budget tax increases… that’s a lot of pressure on our pockets.
I see a fair chance the Next share price could wobble a bit in the near term. It’s not screaming cheap, and there are plenty of good-value alternatives on the FTSE 100. Cash in some more profit and look elsewhere? I’m sure a few people are thinking that.
Saying that, I rate Next as probably the best in its sector. And I see long-term growth prospects. Investors who think the same could do well to consider it.
