Next Plc (LON:NXT) rallied in Wednesday’s early deals despite an update showing a supposedly worse than expected performance in the first three months of its new financial year.
It is of course worth noting the FTSE 100 retailer was already down some 30% since the turn of the year.
The City had already downgraded its forecasts, by between 5% and 10%, following a profit warning in January, nevertheless this morning’s update still made for grim reading.
Next said full price sales were down 4.7% on the high street, between January 31 and May 2, though account shopping via the Next Directory saw a 4.2% increase in full price sales.
Overall full price sales were down nearly 1% in the period.
As has become fashionable, it blamed the British weather. A ‘much colder weather’ in March and April (as opposed to an ‘unusually warm’ 2015) was a factor in the weak high street comparatives, Next claimed.
The company said it was ‘unlikely, but possible’ that sales could deteriorate further, and it cited better trading in ‘the last few days’ as temperatures have increased.
Next has now lowered its own sales guidance for 2016, predicting a 3.5% decline in sales if the rest of the year continues with the run rate seen in the last six weeks.
That would see pre-tax profit some 8.9% lower at £748mln.
At the top end of Next’s forecast, which assumes a better performance, it sees 3.5% sales growth for the year. In this case pre-tax profit is forecast as £852mln.
Next said cash flow remained strong, and it expects to generate £350mln of surplus cash in the current year.
Freddie George, analyst at broker Cantor Fitzgerald, says Next shares are ‘fairly rated’ given its 30% in 2016 and the downgraded City forecasts following an earlier cautious trading update at the end of January.
Whilst repeating a ‘hold’ recommendation for the share, he said in a note that today’s update was “probably not as bad as feared”.
“Our view is that the company is not ‘broken’ although it is entering a period of more moderate growth while it accelerates development of the Label and its activities overseas,” he added.
Elsewhere, Hargreaves Lansdown analyst Charles Huggins said: “Earlier this year Next warned the market that the consumer environment was becoming much tougher, and so it has proved.
“This latest update won’t do much to reassure investors, but with the shares having already lost a quarter of their value since the company’s last sobering assessment, a lot of bad news was already being discounted.”
Huggins described the retail performance as “particularly disappointing” and highlighted a clear deterioration towards the second half of March and all of April.
“Some of that will be down to weather; but weaker underlying demand for clothing also appears to have played a part,” he added.
“This spells bad news for the entire general retail sector, and helps to explain why this has been one of the weakest performing sectors so far in 2016.”
At around 9:45, Next shares were up 187p or 3.76% changing hands at 5.165p each.