Growth wearing off?

That’s what one might think when looking at the headline numbers from Burberry’s most recent trading update. Comparable store sales were flat with a measly 5% revenue growth on a year-on-year (Y/Y) basis. To make things gloomier, sales in the US and China declined 4% and 35% respectively.

However, these figures start to look a little less negative when taking a number of more important factors into consideration. For one, the decline in American sales were due to tough comparisons from the year before, as the continent lifted lockdown restrictions. On a three-year basis, sales are actually up by 62%! As for China, sales were heavily impacted by lockdowns.

Excluding China, sales figures were actually rather impressive. They were 16% higher in Q1 on an annualised basis, with EMEIA showing an impressive 47% growth. Additionally, the company’s most profitable line of products (leather goods and outerwear) saw double-digit growth. This was helped by its partnership with Bimba Y Lola, which contributed to 21% growth in leather goods, excluding China. Moreover, continued investments in digitalisation and AR technology saw new Burberry products and collections reflect strong performances.

Profits are well coated

Despite a substandard Q1 report, management still expects a positive FY23. CFO Julie Brown mentioned that the FTSE 100 firm expects high single-digit revenue growth. She also expects the designer to achieve an operating profit of 20% through to FY24. While gross margins are forecasted to come in lower in H1, she anticipates this to be higher in H2, as a general move towards higher priced items should help margins.

In addition, a 5% increase in operating expenses should remain steady for the time being. This is due to Burberry’s long-term lease agreements protecting it from higher rental costs. As such, Burberry will still have sufficient levels of cash to expand its business with an estimated capital expenditure of £170m to £180m. Therefore, the British firm is on track to delivery 65 newly designed stores by the of its financial year, with its sales outlook remaining unchanged.

Love is in the air

Keeping everything in mind, is this an opportune time to buy Burberry shares then? Well, management is still confident for growth in sales and revenue in the medium and long term. As China stores reopen, I’m anticipating a huge recovery in sales figures in the second half of the year, provided no further lockdowns occur. Chinese Valentine’s Day is also coming up, with Singles Day around the corner as well. Hundreds of billions of dollars are spent on occasions like these, and if Burberry can capitalise on this, it should see its sales figures soar.

Having said all that, I think this is a good time to buy Burberry shares for my portfolio. The company’s business seems to be ‘inflation-proof’ as it’s been able to pass on higher costs to consumers with no resistance. And as the Chinese population becomes increasingly affluent, an increase in luxury good spending should benefit Burberry shares for years to come.

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John Choong owns of Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Marks and Spencer (LSE: MKS) shares are down 40% this year. Despite that, the retailer reported excellent numbers in its most recent full-year results, with plenty of promise for the future. As such, I think a closer look at the company is warranted.

Hungry for more

After years of declining profit margins, Marks and Spencer launched its latest turnaround programme in 2020 under the Never the Same Again name. This bid to improve the brand’s image and business operations looks like it might be working. The FTSE 250 firm has posted an excellent recovery since, with improvements in customer perception of the M&S brand. As a result, M&S Food sales grew 10.8% year-on-year, while expanding its market share from 3.4% to 3.6% over a three-year period. This was also helped in part by its key partnerships with Coca-Cola‘s Costa Coffee and Ocado.

Additionally, the firm saw its operating margins improve in the second half of its financial year. Even so, I was impressed that the board is aiming to further improve its food supply chain through boosting efficiency and cutting costs. Thus, I expect its food prices to become more affordable, allowing it to expand its market share.

Getting the right fit

Marks and Spencer isn’t just its food business, however. One of the main reasons behind its poor past performance can be attributed to the company’s inability to keep up with the times, as far as its struggling clothing offer was concerned.

That being said, the Never the Same Again programme gave a breath of fresh air to the retailer’s clothing segment. Consequently, the division saw its sales figure jump 51.6% on the year and 3.8% against three years ago.

There’s also the positive effect of M&S’s investments in digital. With heavy competition from e-commerce giants and more nimble omnichannel retailers, Marks and Spencer was always going to struggle. However, enhanced investment has made its e-sales more market competitive. In fact, market penetration has almost doubled to 34%. This has been helped by around its 40 clothing brand partnerships. Moreover, the acquisition of Jaeger and The Sports Edit have added even more depth and variety to its offer.

A summer with Marks and Spencer

Since 2018, Marks and Spencer has reduced its debt levels by 12%. What impressed me most though, is its cash position, which has grown by a whopping 455%! Furthermore, profit margins are back to a healthier level of 2.8%, with free cash flow at £1.1bn.

Nevertheless, my concerns of a potential recession impacting sales are shared by the board. Having said that, CEO Stuart Machin stated that its market positioning and business strategy will help mitigate any slowdown. He believes that the company has a strong brand image to help it maintain its market share. He also expects strong tailwinds from travel, leisure, and weddings to keep its sales numbers strong.

Marks and Spencer shares have a price-to-earnings (P/E) ratio of 9. While it’s not seen as a traditional growth stock, it does have an average price target of £1.93. This gives it the potential to rebound by 43% over a one-year period. Therefore, I’ll be capitalising on its low share price and will buy some stock for my portfolio in July.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Ocado Group, and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Burberry on discount?

There are multiple reasons behind the Burberry share price fall — rocketing inflation, low consumer confidence, fears of an impending recession, you name it. However, one economic metric that stands out is retail sector weakness. Retail sales figures coming out of China have been dismal.

Burberry receives the bulk of its revenue from Asia, and more specifically, China is a key market. As such, lockdowns there have impacted consumer spending substantially. As a result, the country’s retail sales figures have seen a steep decline. For context, China’s retail sales were 11.1% down year on year in April, and down 6.7% in May. Burberry said that Chinese sales accounted for 30% of its turnover last year, but were down 13% in Q4.

Making matters worse, that other key Asian market, South Korea has seen its retail figures decline on a month on month basis since January. Nevertheless, there could be a glimmer of hope for Burberry. As China’s major cities come out of lockdown, I expect sales to start rebounding.

Luxury perks

Do Burberry shares come with good income? Well, the stock goes ex-dividend on 30 June so if I buy it after that, I won’t get the latest dividend payout. But it’s planning a final payout of 35.4p per share, giving it a 2.8% dividend yield. While this isn’t the highest in the FTSE 100 index, the yield still outperforms the luxury industry’s average of 1.7%. Taking these factors into account, I think it’s a reasonable percentage.

Diamonds are created under pressure

Burberry shareholders felt the pressure when its share price dropped as low as £14.80 in May, but that pressure may be about to reverse. The stock has seen a steady recovery since then, and could be on track to head into the green, as retail sales in China are expected to recover sharply in the coming months.

Furthermore, the firm is expected to benefit from travel tailwinds. This is because it generates a substantial amount of revenue from airport stores and tourists shopping in destination cities. Having said that, Burberry will be reporting its Q1 results in around two weeks’ time. I’m not expecting strong figures given the lockdowns in China and poor retail sales data coming out of South Korea.

But like many investors, I’ll be paying close attention to guidance provided by management. A downward revision of its expected earnings for the year could send the share price lower. In that scenario, I’ll be looking to buy some shares. After all, the company has a healthy balance sheet with high-quality earnings margins. Therefore, I think it’s a matter of when, not if, Burberry shares will return to previous highs above £23.

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Many growth stocks have seen their valuations slashed in half or more this year. Dr Martens (LSE: DOCS) is no exception as the stock lost more than 55% of its value at one point. However, the retailer posted an excellent set of FY 2022 results. Since then, the Dr Martens share price has shot up by 40%. This makes me wonder whether this growth stock is set to explode further.

Just what the Dr ordered

Dr Martens has had a tough year since the business listed via an IPO last January. The stock tumbled after management disclosed a heavy £80.5m in listing costs. Additionally, a £49.1m one-off IPO bonus given to employees soured investor sentiment further, stomping the Dr Martens share price into the ground.

Nonetheless, the firm’s most recent annual results blew my expectations out of the water. I was taken aback by how well the FTSE 250 growth stock did as a business, rather than as an investment, having been initially bearish about the company’s prospects. Sales for the year came in at £908m with a net profit of £181m. This was well above what analysts had forecast at £155m. More impressively, Dr Martens grew its gross margins by 2.8% to 63.7%. The company focused more on its own retail sales and cut wholesale distribution, which helped its bottom line massively.

A strong tail kick

It’s no secret that strong, in-demand brands fare better in high-inflation environments because these brands are able to pass on costs to consumers who will still buy their products. And Dr Martens has price rises in the pipeline. Its sector is bearing up well too. Despite the latest BRC retail sales data showing a contraction in overall consumer spending, the fashion industry did relatively well.

As such, Dr Martens has a tailwind that could help it ride through the inflationary storm. On the earnings call, CEO Kenny Wilson mentioned that he doesn’t see demand softening. He reiterated the company’s efforts to expand further in America, Germany, Japan, and China where he sees untapped potential for growth. With China also coming out of lockdown, this could be a windfall opportunity for the boot maker.

A big boot to fill

With that being said, I think it’s important to stay realistic about Dr Martens’ goals. Its amazing numbers and lofty ambitions should definitely be commended. However, the manufacturer now has to live up to the high expectations it set out, or risk its stock crumbling again.

Nevertheless, I’m impressed with how the firm has managed to improve the state of its balance sheet. For one, its debt-to-equity ratio is finally below 100%. Secondly, it increased its free cash flow to £159m from £129m last quarter. Dr Martens also has a healthy level of assets to cover its short-term liabilities. Finally, the company increased its dividend to £0.04 per share, giving it a 3% yield. So, with an average price target of £3.32, Dr Martens seems to me like it could be on track for an explosive recovery, making it a lucrative growth stock for me to purchase for my portfolio.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Coating its pockets

The first thing I look at before I invest in any company is its balance sheet. boohoo’s balance sheet is rather healthy, with a 10.4% debt-to-equity ratio and enough cash at £70m to make up for its £50m debt. Its assets also sufficiently cover its liabilities, which is always a good sign. However, boohoo has taken on debt in its most recent half while also having its cash position cut almost in half. According to management, this was done to offset an increase in capital expenditure (Capex) as the company invests more in facilities to scale its growth prospects.

boohoo growth

boohoo reported that its net sales were up 10% in its most recent quarter. Active customers, orders, and order frequencies all saw an increase as well, but with that also comes a fly in the ointment. For starters, all regions bar the UK saw declines in growth. This was due to “Significantly longer customer delivery times as a result of the pandemic”, as international sales are fulfilled through its UK production line. But although customers and orders continue to grow, the average order value and items per basket have seen a decline, thus impacting quality earnings.

Moreover, boohoo has been experiencing declining annual sales growth. Its growth rate has seen a steady decline from 48% in 2019 to 41% in 2021. Furthermore, its profit margin has gone down from 5.5% in 2019 to 3.1% in its latest half. This shows me that the retailer is struggling to keep up with rising costs as inflation continues to run rampant. Primarily, carriage, freight, and labour have seen the biggest uptick in costs, with the AIM company expecting the drag to continue for the rest of the year. Nevertheless, investors will be hoping that the new US distribution centre set to open in 2023 will help ease the firm’s current supply chain constraints.

Nevertheless, investors will be hoping that the new US distribution centre set to open in 2023 will help ease the firm’s current supply chain constraints.

Hoo’s the future?

On the one hand, boohoo’s exciting ventures into the NFT and metaverse space could be a game changer if it succeeds. Its aggressive marketing strategy also shows the firm’s commitment to grow its sales numbers. Not to mention, it is investing more in automation in order to offset rising labour costs.

On the other hand, boohoo does face strong headwinds. Sky-high inflation has forced central banks to increase interest rates, and this has had a stifling impact on companies’ growth prospects. People are less willing to borrow and spend money at higher interest rates. This is evident in the latest GDP figures, which showed a decline in economic growth. The latest retail sales numbers did not look very promising either, showing a contraction.

While the boohoo share price looks reasonable at its current valuation, declining sales growth, spiralling costs, and a stalling economy, do not justify the opportunity cost for me to invest in boohoo. Therefore, I do not see this as a favourable climate for me to buy the shares for my portfolio.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Burberry (LSE: BRBY) share price was on the back foot again this morning, despite soon-to-depart CEO Marco Gobbetti stating that the FTSE 100 company had made an “excellent start to the new fiscal year“. Should shareholders like me be running scared or loading up on the luxury brand’s stock? I think it’s the latter.

“Strong recovery”

Today, Burberry revealed that it had seen a “strong recovery” in the first quarter of its financial year. Positively, comparable stores sales were now “in line” with those before the pandemic struck. These were up 90% on those achieved over the same period last year and 1% on 2019. Retail revenue hit £479m in the 13 weeks to 26 June. 

The biggest jump occurred in the Americas where sales jumped 341% on last year. In Europe, the Middle East, India and Asia, there was 146% growth, although fewer tourists visiting its stores thanks to travel restrictions continues to be a problem. Having recovered quickly from the pandemic, sales in the Asia Pacific region were 27% higher.

In line with many other businesses, Burberry also saw “excellent growth” online. Here, full-price sales were more than double those from 2019. In addition to this, the company stated that it had received an “excellent response” to its new handbag campaign featuring influencer Kendall Jenner. Full-price sales to new customers over the quarter rose by “mid-30%s“.

Looking ahead, Burberry chose to keep its FY22 guidance unchanged. The only exception is at its wholesale arm which is now predicted to rise 60% year-on-year due in part to a healthier order book. High single-digit revenue growth over the medium term “remains firmly on track“, it said. 

So, is now the time to load up?

As a holder, I’m naturally biased. However, I do feel that the recent weakness in the Burberry share price is an opportunity for me to snap up more shares in a company that I suspect will be worth a lot more in a few years. This is an iconic brand, hugely popular with increasingly affluent (and environmentally-conscious) consumers, particularly in countries like China and Korea.

Naturally, there’s are a few hurdles ahead. The most obvious of these is finding a new leader. The news of the forthcoming departure of Gobbetti has hit sentiment and exposed a lack of succession planning in Burberry’s ranks. It’s also thrown into question the company’s ability to complete its turnaround without his influence.

Other things that may be troubling investors include the fact that 35% of Burberry’s stores are still operating on reduced hours. The ongoing travel restrictions aren’t helping either. 

I’d buy the dip

Ultimately, I’m confident a suitable replacement will be found. The concern that Burberry’s strategy will collapse due to one man’s departure is taking things too far. All management moves on eventually. As usual, the market simply hates uncertainty.

In my opinion, the time to buy a quality company’s stock is when it’s on sale due to a temporary setback. While it could take a while for the Burberry ship to steady, I believe it will. As such, I would have no issue adding to my holding today.

For me, the main worry is not Covid-19, nor the loss of a CEO. It’s that Burberry will be taken out by a suitor at a price that doesn’t fully reflect what I believe to be its true value.

The post The Burberry share price is falling. I’d buy this FTSE 100 stock now! appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Boohoo share price: what gives?

One potential explanation for the latest capitulation in the Boohoo share price is related to concerns over whether co-founder Mahmud Kamani will be required to give evidence in a $100m lawsuit.

As reported in the Financial Times, Boohoo has been accused of using fake promotions in the US for a number of years. It’s been claimed that customers have been presented with inflated original prices. This, in turn, made discounts seem greater than they actually were. In response, the company’s claimed that Kamani isn’t usually involved in setting prices. As such, he shouldn’t be required to answer questions.

Clearly, this isn’t the sort of headline that investors (including myself) wish to see after the hits to Boohoo’s reputation over the last year or so. This isn’t the first time it’s faced accusations of this kind either. Three years ago, the £4bn-cap had its knuckles wrapped over similar tactics and the use of psychological tricks, such as countdown clocks, in the UK. 

So, could things get worse? In the very near term, it’s hard to predict which direction the Boohoo share price may go next. A cheap stock (based on growth potential) can always get cheaper. However, I remain optimistic.

Reasons to be optimistic

For one, the company still has its cheerleaders. Indeed, the Boohoo share price rose yesterday (Tuesday) following a ‘buy’ recommendation by broker RBC. Analysts there have set a target price of 410p a pop once the contribution of new brands kicks in. 

Investors might also speculate that the fall in the Boohoo share price isn’t necessarily about Boohoo. After all, shares in fashion peer ASOS haven’t been on fire recently. The AIM-listed rival has lost 15% of its value over the last three months. This loss of momentum may be due, in part, to investors taking profits after benefitting from multiple UK lockdowns and looking for bargains elsewhere.

Bargain stock?

Once normality returns however, I suspect we could see a preference for growth over value again. Strong interim numbers in September could be a catalyst for this. So too could further evidence of progress on hitting its ESG targets and successfully integrating newly-acquired brands.

On which note, it was announced today that the company would partner with Alshaya Group in the Middle East. The latter currently runs Debenhams stores in the region. The agreement will mean that Boohoo’s brands will now feature in stores from Q4, and through a local online platform from “early 2022.“ This is an interesting development considering ASOS’s similar deal with luxury store chain Nordstrom to stock its brands in the US.

Should all the above come to pass, the current valuation of 27 times earnings could prove a bargain, in time.

Naturally, none of this is nailed on. In fact, the Boohoo share price could slide again if earnings surprise on the downside, or the company continues to make headlines for the wrong reasons. Rising Covid-19 infection levels would likely hit sentiment as well. 

As ever, it pays for me to remain diversified, just in case…

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Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Boohoo (LSE: BOO) share price has been uncharacteristically stable over the last couple of months. I think that could be set to change in May as the company reports its latest set of full-year results to the market. But in which direction will the stock go? Here’s my take. 

Boohoo share price: ready to pop?

Based on its last trading update, I think it likely that Boohoo’s latest numbers will be nothing short of stellar. Back in January, the company announced revenue growth of 40% in the last four months of 2020 with all brands performing well. Reading across from rival ASOS’s recent record results, I sincerely doubt trading has dramatically slowed since. 

Aside from the numbers, I suspect Boohoo will provide another encouraging update on how its ‘Agenda for Change’ programme is going. This was brought in to implement all the recommendations made following Alison Levitt’s independent review of the supply chain.  So far, we know that the company has taken steps to consolidate its UK supplier base. Confirmation that directors will agree to link their bonuses to the firm’s performance on Environmental Social and Governance (ESG) measures would be another step in the right direction. 

What may go wrong?

Of course, whether Boohoo’s share price rises or falls is not purely dependent on how big the numbers released on May 5 are. It also depends on the extent to which those numbers meet or exceed expectations. Those who have played the game long enough know that investing is as much about psychology as it is about anything else. The more the market asks for, the greater the chance of it being disappointed. And there will come a time when Boohoo disappoints trading-wise.

This is why I think it’s so important to consider the risks to stocks I own as much as all the reasons to hold.

Perhaps the company’s original target market may turn away when they learn it now owns more ‘mature’ brands such as Dorothy Perkins and Debenhams. Maybe they won’t care. Even if they don’t, will Boohoo’s management be successful in spinning a lot more plates than it’s been used to?

Another risk to the Boohoo share price is that online sales may moderate once coronavirus restrictions are fully lifted in June. Maybe job concerns will make people tighten their purse strings after an initial splurge. Right now, we don’t know. This is why it’s important not to get carried away on the AIM-listed giant’s prospects.

To complicate matters, the current forecast P/E of 32 is reasonable enough for a top growth stock. However, it’s still high enough to fall hard. 

No crystal ball

All of the above makes estimating where Boohoo will be at the end of next month exceedingly tricky. As such, I would never buy a stock purely to try and make money over a few weeks. That’s a trader’s strategy. Some people can make it work. Most of us can’t.

Notwithstanding this, I believe there’s a higher probability than not of a positive reaction in May. Boohoo feels like a better company than it was when its valuation peaked last June. 

Whatever happens, I won’t be selling as I did a few years ago (albeit with a healthy profit). This is a long-term growth play and I want to be a part of it. 

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Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended ASOS and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So what caused all the volatility in the first place? Will the share price continue to rise? And should I be adding this stock to my portfolio?

The volatile Boohoo share price

In early July last year, the Boohoo share price crashed by nearly 50% following allegations made by The Sunday Times. The newspaper was the first of many to accuse Boohoo of poor labour practices as well as putting its workers at risk during the pandemic.

Needless to say, this is quite serious. And so I wasn’t surprised when other clothing retailers dropped Boohoo’s products from their e-stores. To make matters worse, the company could even be facing a US import ban on its products, reports have claimed.

Boohoo swiftly launched an independent review of its business to investigate these allegations. And in September, the review found no evidence of any criminal activity. The management team also stated it was not aware of any ongoing investigations by the US Customs and Border Protection agency but is prepared to work with authorities if requested to do so.

These allegations, while unproven, have created some notable reputational damage. And looking at Boohoo’s volatile share price, there appears to be quite a bit of uncertainty as well. Based on current information, I think it’s unlikely that Boohoo will receive a US ban. But if it does, then a quarter of the firm’s total revenue would disappear. And it would also lose access to its fastest growing market.

The underlying performance is encouraging

Setting aside these issues, the company itself is performing exceptionally well. At least, I think so. In January earlier this year, Boohoo released a trading update that showed total revenues grew by 42% over the last 10 months. Seeing that level of growth coming from a fashion retailer is exceptional in my experience. And it would seem that the loss of the previously mentioned partnerships with other retailers hasn’t had a significant impact on performance.

What’s more, the increased profits are being put to good use. Boohoo recently announced an expansion to its warehouse facilities to be completed later this year. Once operational, the site will substantially increase the business’s annual sales capacity. Combined, its four locations will give the group net sales capacity in excess of £4bn. Assuming it can continue generating more orders to take advantage of this increased capacity, I believe that the Boohoo share price can continue to climb even higher over the long term.

The bottom line

Boohoo continues to impress me. However, there is no denying that the scrutiny the company is currently facing adds a considerable level of risk and uncertainty. At today’s share price, Boohoo has a P/E ratio of around 50, which is relatively expensive even with its impressive growth.

And in my experience, a high valuation mixed with uncertainty don’t tend to be a winning combination. So, while I do believe the business will thrive over the long term, I’m not going to be adding any shares to my portfolio today.

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Zaven Boyrazian does not own shares in Boohoo Group. The Motley Fool UK has recommended Boohoo Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Elsewhere, Next reported its warehouse picking and despatch capacity had returned to normal levels. The company also benefitted from far fewer returns over the lockdown period as customers, unable to go back to stores, were being more selective with their purchases. 

I think there are arguments for and against buying shares in Next right now. One positive is that the company seems as prepared as it can be for whatever happens next.

Today, Next provided a set of scenarios on how the business might perform in three different trading environments. These had full-price sales for the full-year down 18%, 26% and 33%.

Encouragingly, Next believes the middle scenario (-26%) to be most likely at the current time. This assumes a 33% reduction in sales at its retail stores and a 7% fall in online sales. Should this come to pass, Next predicts pre-tax profits will come in at £195m. This is hardly a disaster relative to what other retailers are facing.

Another reason for backing the company now is its financial position. Thanks in part to the suspension of dividends and share buybacks, Next has been able to shore up its cash resources. As a result, net debt at the end of its financial year is expected to “fall significantly” (by between £460m and £650m). This should allow the company to hit the ground running when the coronavirus is finally sent packing.

Reasons to steer clear

Next has long proved itself to be a quality business in a seriously tough sector. Whether this makes it a buy at the current price is, however, still debatable.

As always, I’d caution any Foolish investor against throwing every penny they have at a single stock and ensure they’re sufficiently diversified elsewhere before taking a stake.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.