High street stalwart Next Plc (LON:NXT) sent a shiver through the retail sector today, and it looks unlikely that any woolly jumper will be able to keep out the cold wind blowing through the clothing stocks.
Shares in the FTSE 100-listed retailer tumbled to their lowest level for more than three and a half years after it downgraded its full-year profit guidance and warned of another challenging year ahead as sales over the key Christmas period fell 0.4% on last year.
Next, which has said repeatedly that Britons are spending less on clothes, also warned that its 2017-18 pretax profit could come in a full £100mln below current market forecasts.
READ: Next slumps …
The firm’s latest gloomy trading update wiped more than 10% off a share price that had already slumped by a third in 2016.
The gloomy outlook also weighed on other blue chip retailers, with Marks & Spencer Group PLC (LON:MKS) shedding 4% at 329.7p and Primark-owner Associated British Foods PLC (LON:ABF) dropping 3.3% to 2,608p, while mid-cap department stores operator Debenhams PLC (LON:DEB) lost nearly 6% at 51.8p.
High street dinosaurs ….
Neil Wilson, senior market analyst at ETX Capital, said: “Investors are clearly wary about high street dinosaurs as we head into an uncertain 2017, with Brexit, inflation and a weak pound all a major concern.”
And Tony Shiret, analyst at Haitong Research, said: “The central debate here is generic to the UK clothing retailers though: is physical capacity correctly set given that at least part of the peak season miss is likely to have reflected continued switching online.”
Next was the first major British retailer to report on Christmas trading and its statement stoked concerns about lower customer numbers on high streets as shoppers increasingly shift to buying online.
AJ Bell Investment Director, Russ Mould said: “A profit warning from Next means the Christmas trading statement season from the nation’s retailers is starting with a bang of the wrong kind.
“The profit downturn ends a string of nine consecutive increases in annual profits at Next although the company does intend to make four special dividend payments of 45p each in the coming year.”
But, he added: “That 180p cash return – which is not guaranteed – does imply a 4.1% dividend yield on a £43.50 share price and this may provide some support to the stock.”
Primark preferred …
Meanwhile, although analysts at RBC Capital Markets said consensus profit forecasts for Next would probably fall by a high single-digit rate, the broker kept its rating on the shares at 'sector perform'.
The analysts predicted that Next’s shares will keep pace with the rest of the clothing retail sector, but said investors should rotate into AB Foods.
They said they expect a gradual improvement in sentiment for the firm’s fast-fashion chain, Primark as sales improve.
They added: "We view Primark as a best-in-class discounter with a buying and pricing advantage, high sales densities and an attractive in-store environment and level of fashionability given its extremely low price points."
AB Foods will issue its Christmas trading update next week, on January 12, the same day as Marks & Spencer, and Debenhams!