Credit Suisse is becoming increasingly concerned about fashion firm Next Plc’s (LON:NXT) ability to maintain its margins.
Operating expenditure is rising and, reflecting sterling’s post-Brexit vote plunge, input costs are on the rise, meaning Next will struggle to pass on higher costs, according to the Swiss bank.
On top of that, Next Brand sales are “looking increasingly mature”, and Credit Suisse (CS) reckons Next’s underlying earnings (EBIT) margins will have peaked at an industry high of 20% in 2015/16.
"The strategy of passing through higher costs, in a deflationary environment, and continuing to add space, seems likely to lead to cost de-leverage, without increasing productivity gains," in CS's view.
“Deteriorating sales growth for Directory (3Q 0%) implies that the only sources of sales growth for Directory are lower margin Label and International,” CS said, as it downgraded the stock to ‘under-perform’ from ‘neutral’.
The target price has been cut to 4,600p from 4,950p.