Berenberg has put the boot into high street clothing retailer Next Plc (LON:NXT) today, downgrading its rating to ‘sell’ from 'hold’ with a 3,650p price target after a recent rally by the share price.
In mid-morning trading, Next shares topped the FTSE 100 fallers list, down nearly 4%, or 171p at 4,224p.
In a note to clients, the German broker’s analysts said the 10% rally in Next’s share price following the weather-driven second-quarter sales beat “provides material downside” and “an opportunity to short the stock”.
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They added: “We believe Next is burdened by its overspaced store estate, which restricts its ability to invest in areas that matter most to the consumer – product and free home delivery, leading to market share erosion.
“While it was quick to recognise the online opportunity, it has failed to fully adapt its business model, instead focusing on short-term cash flow and profitability.”
The analysts concluded: “We believe offering free home delivery could reduce EBIT margin by c5ppt in the near term, but is ultimately necessary to maintain market share.”