Next Plc (LON:NXT) was once the darling of the City and the UK high street, even eclipsing its clothing and homewares peer Marks & Spencer Group PLC (LON:MKS).
But those days are long past for the FTSE 100-listed retailer, which has regularly pared back its sales and profit guidance over the past few years as poor performances from its high street stores fail to be offset by resilience in its online and catalogue Next Directory business.
READ: Next shares drop as retailer cuts upper end of full-year guidance
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In a note today, Jordan Hiscott, chief trader at Ayondo Markets pointed out: “The dominance of Next was once undisputed. Back in 2010, shortly after the global credit crisis, the firm regularly outperformed its industry peers, thanks to its strong presence on high streets and in out of town stores, combined with an efficient online offering.”
But he added: “Fast forward to today and the story couldn’t be more different, with share price having fallen 49% from its 2015 high of 8,175p to 4,169p today.
“Unfortunately for the brand, there is a negative pattern not only to the share price but also the sales performance, beginning with a profit warning at the start of the year and culminating with the company trimming its own range forecast today, now capped at £740mln.”
WATCH: Wilson King's Richard Hunter on Next's 'fairly disappointing' update
In March, Next reported its first annual profits fall for eight years having warned in a trading update in January of another challenging year ahead with sales over the key Christmas period falling 0.4% on the previous year.
Today the group reduced the upper end of its profit and sales guidance for its current year after reporting a 3.0% drop in first-quarter sales, which were at the bottom-end of its range of expectations.
Ayondo’s Hiscott concluded: “Make no mistake, the consumer environment across the sector is challenging at the moment. I don’t see this changing any time soon, with the effects of an unpredictable Brexit, another UK election and low wage growth all potentially weighing heavily on the sector.”
Next shares down over 15% in the year to date
After a hopeful rally ahead of the latest update yesterday, Next shares were punished today, falling by nearly 5% to 4,203p, and reversing some of the recovery seen since the 2015/16 results which had been helped by the promise of special dividends, with the stock currently down over 15% in the year to date.
READ: Next investors shrug off annual profit decline and note robust cash flows
Mike van Dulken, head of research at Accendo Markets, commented: “Even Jan’s equivalent of a corporate lollipop in the promise of more cash returns (four special dividends of 45p/extra 4% yield) is failing to support a share price which has already lost almost 50% in less than 18-months.”
He said: “Those of a bullish persuasion may see today’s early management capitulation as an attractive entry opportunity if it is able to upgrade guidance again later in the year.”
But van Dulken added: “Bears will merely point to this poor update coinciding with yesterday’s teasing but ultimately failed attempt to overcome 17-month falling highs at 4,370p, merely keeping the long-term downtrend intact.”
“That’s not to say that Next is purely a victim of circumstance,” says analyst
The charitable bulls could point out that conditions for everyone on the high street are looking tough, but the bears would also note that Next has not been helping itself.
George Salmon, equity analyst at Hargreaves Lansdown said: “Whichever way it turns, Next just can’t seem to catch a break at the moment.
“Online competition is ratcheting up, weaker sterling is increasing costs and conditions on the UK High Street are far from favourable.
“That’s not to say that Next is purely a victim of circumstance. The fact that current ranges are described as ‘not where they need to be’ isn’t doing the group any favours.”
But, Salmon added: “The positive to hold on to is that Next has historically been an exceptionally well-run business, and many of those who have contributed to its success are still on board.”
He concluded: “Investors will be hoping this raft of experience will help CEO Lord Wolfson steer the ship through these choppy waters.”