Shares in Next PLC (LSE:NXT) are expected to outperform those of Primark owner Associated British Foods PLC (LSE:ABF) off the back of the FTSE 100 clothing retailers' trading updates next month, according to analysts at Jefferies.
The US investment bank has updated its outlook for Next and ABF, forecasting stronger performance for NXT while expressing caution about ABF's profit margins.
"NXT on one hand should benefit from its more explicit growth agenda, whilst ABF is likely to signal that the margin recovery phase has run its course, and that the focus for the group will be on reigniting sales momentum," analysts said in a note to clients.
Its price target for Next was hiked to 11,400p from 10,300p, citing the company's strong growth potential, particularly in international online sales.
Jefferies highlighted that Next's shares have been re-rated to historical peaks, and the upcoming interim results on September 19 are expected to reinforce this trend.
Conversely, Jefferies lowered its price target for ABF to 2,500p from 2,600p as analysts suggested that the margin recovery phase for the company, driven by its Primark brand, may have peaked.
"Whilst we do not see major risks to a FY guidance for 'significant growth' in profits this year, we are conscious of a 150% surge in spot freight rates since ABF last reported.
"In addition, weather conditions have proven on the whole unhelpful to fashion players in the past Spring/Summer season (both in the UK and in a number of European markets)."