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Next's Christmas surprise lifts UK retail stocks ahead of slew of festive trading updates

An unexpected rise in Next's sales over Christmas boosted shares of other UK retailers due to post similar trading statements over coming weeks
Next
Next rose to the top of the FTSE 100 after a well-received trading update

Next Plc (LON:NXT) led UK retail stocks higher in Wednesday trading after unveiling a better-than-expected Christmas trading update.

The fashion retailer soared as it posted a 1.5% rise in total full price sales between November 1 and December 24, helped by the colder weather.

READ: Next lifts full year profit forecast after unexpected rise in Christmas sales

The squeeze on consumers from higher inflation was expected to lead to a decline in sales over the period, but it seemed shoppers carried on regardless.

The surprise increase in sales boosted shares of other UK retailers due to post their own Christmas trading statements over coming weeks.

Marks & Spencer PLC (LON:MKS), Debenhams (LON:DEB), John Lewis, JD Sports Fashion PLC (LON:JD. and Primark owner Associated British Foods plc (LON:ABF)  will update the market this month.

Next's share price rise merely a reversal from earlier slump

However, one analyst noted that Next’s update has merely helped its shares close November’s gap down from 4,900p, when third quarter sales missed expectations and the company cut its earnings guidance.

“Furthermore, we are only back to the levels from which we fell before last year’s disappointing January update, one which triggered a 14% fall, adding to shareholder woes and starting 2017 on the wrong foot,” said Mike van Dulken, head of research at Accendo Markets. 

“As much as today’s update is good news in itself (positive full price sales, outlook positive), and adds to share buyback and special dividend goodies, management’s update-by-update tinkering of guidance (that’s four in a row now), and sharp share price reactions only goes to reinforce how shareholders remain at the mercy of the UK consumer from one season to the next and exposed to short-termism.”

High Street stores under pressure

He added that a 6.1% fall in sales at Next stores against a 13.6% rise in online sales, reflects the struggles facing bricks and mortar retailers as more consumers opt to make purchases on the internet.

AJ Bell’s Russ Mould also noted that trading at the company’s High Street stores remained tough but said Next shrugged this off by demonstrating “the power of its online operations”.

A strong performance in online sales allowed Next to reduce its stock its end-of-season sale by 6% compared to last year, he said.

“In addition, the website makes it easier for the company to shift products that are in the sale – rather than scattering them across its stores estate around the country and hoping for the best, the retailer can keep the goods in its warehouses and sell them to those customers who have placed online orders.”

Next boosted by plans to return surplus cash to shareholders

Next’s shares were also supported by its decision to return an expected £300mln in surplus cash next year to shareholders through share buybacks rather than special dividends.

This implies management believes the shares represent good value at the moment, according to George Salmon, equity analyst at Hargreaves Lansdown.

Salmon also highlighted that chief executive Simon Wolfson said the company expects cost price inflation to ease this year.

“The long-serving CEO has an excellent reputation in the industry, so for him to say that one or two of the headwinds facing the UK’s retailers should ease in the year ahead represents a significant fillip to the sector,” Salmon said.

Shares in Next were up 6.5% to 4,795p in late morning trading. 

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