Tag Archives: Next plc

Stocks in Focus: Next

This week I am writing about Next, the fashion retailer that provided a disappointing trading update last week. Next is often regarded as a bellwether for fashion retailers, many of which will provide their own trading updates later this week. Next had hoped to improve on the poor sales it had in the run up to Christmas 2015, which were hampered by understocking of popular items. However, it announced a modest fall in sales for the equivalent Christmas trading period in 2016 and a fall of 7% in the post-Christmas sales promotion period.

As with the rest of the retail sector, Next has had to contend with unusual weather patterns that have made stocking relevant seasonal items challenging. The British consumer is also moving away from spending on fashion, with data indicating people are spending more on leisure and experience activities than high street retail.

Looking forward, management guided towards ‘an even tougher sales environment for the retailers’ in 2017 and suggested a further fall in profits of between 2% and 14% for the year. Uncertainty over rising inflation eroding earnings growth and putting a squeeze on consumer spending were cited as challenges the company faces in the coming year. In an attempt to reassure investors, the group have adjusted its return of surplus cash to four quarterly dividends of equalling amounts.

The consideration for investors is now to assess whether Next is suffering from self-inflicted, company specific issues, or whether their figures are indicative of the wider fashion retailer landscape. It will be interesting to see whether other retailers’ announcements over the coming days shed any further light on this as we move into a very uncertain year for the UK retail sector.

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Stocks in Focus: Next

This week Oliver Phillips looks at Next plc, a former stock market darling that has recently fallen out of favour with investors.

Next is divided into two divisions, Retail and Directory. The Retail division represents the bricks & mortar side of the business which sells to consumers on the high street and in retail parks. The retail sector as a whole is under strain and this division has seen a modest decline in recent years – management have attempted to cushion this by focussing on their retail park offerings and increasing average store size. The Directory division, the online business which has evolved from a mail-catalogue offering, has been the main driver of growth in recent years and has enjoyed a reputation for setting industry standards for logistics infrastructure and delivery capabilities.

Having reached a high of £80 last October on the back of consistently strong growth within Directory, the share price has since slumped to around £54 – so why have investors decided to take such a different view on the business? First and foremost, growth has been beginning to slow in the Directory division and there is a fear that the business has reached maturity in the UK market. Trends in the retail sector are also uncertain, and some predict the polarisation of consumers towards either premium or value products, away from the middle ground that Next currently occupies.

Looking forward, investors need to consider whether or not the business can continue to drive profitable growth. On the one hand, management has a strong track record of delivering, even in tricky circumstances. On the other hand, the fate of BHS shows that failure is punished hard in the retail sector.

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