Next (LSE: NXT) published its interim results today, reporting its strongest sales growth for many years.
Total sales were up by 10.3% on the first half of last year, operating profit was up by 19% and the interim dividend rose by a spectacular 39%, to 50p. The firms operating margin moved higher, too, rising from 18.3% during the first half of last year to an impressive 19.3%.
However, Next shares fell when markets opened, and at the time of writing, were down by around 2%, leaving the shares hovering around the 70 mark.
So whats happening and should shareholders be worried?
If you are a Next shareholder, I dont think you should worry, but it might be unwise to expect this rate of growth to continue indefinitely.
Next made this clear in the opening remarks of todays report, when discussing the first halfs outstanding sales performance:
However it is important for us to recognise that this performance is, in some part, down to external factors We remain mindful that some of these factors are likely to be less favourable next year and this years fine summer weather could present tough comparatives next year, when interest rates are also expected to rise.
Guidance doesnt come much clearer than that, and this measured and cautious outlook is, in my view, the main reason the firms share price is has fallen today.
A buying strategy?
Next has been a very rewarding stock for long-term investors, climbing by 308% over the last five years, during the retailers ordinary dividend has grown from 55p to 129p; an increase of 134%, or 18% per year, on average, plus special dividends, which have totalled 150p this year.
Although the companys valuation is reasonably demanding with a 2014 forecast P/E of more than 17, and a prospective yield of 2.1%, or 4.3% with this years special dividends quality businesses tend to continue to outperform for longer than you might expect.
Its worth noting that Nexts current limit price for share buybacks is 66; more than 5% below the current share price. Nexts buying limit for share buybacks is designed to ensure an 8% rate of return.
In my view, buying Next shares in line with the firms own share purchases could be a smart strategy for long-term investors.
The next NEXT?
Next shares have provided a total return of 35% per year for the last five years, compared to just 10% for the FTSE 100.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.