Goldman Sachs gave a knock to Next PLC (LON:NXT) shares on Friday, downgrading its rating for the clothing and homewares retailer to ‘sell’ from ‘neutral’, pointing out that Next UK brand sales have been in decline for four years and beyond coronavirus (COVID-19) it expects them to decline again.
The US investment bank also reduced its discounted cashflow-based 12-month price target for the FTSE 100-listed stock to 4,400p from 5,300p which it said reflects a more cautious view of medium-term revenue. In morning trade on Friday, Next shares were 2.9% lower at 4,883p.
In a note to clients, Goldman’s analysts said: “The trend has been driven by both declining store LFL sales and the largest online market share losses amongst peers. The most significant market share gains are coming from the pure-play online retailers/aggregators (ASOS, Boohoo and Amazon), TK Maxx and JD Sport. This trend appears ongoing as Next Online exits lockdown.”
They noted: “Given its online maturity (GSe FY20 39% online penetration, vs. 29% UK non-food average), we believe Next UK brand online sales will benefit less than peers from the current COVID-19 related UK online penetration increase (a step-up from 29% to 37% in 2020 GSe).
“Post COVD-19 disruption, we expect the Next UK brand return to a yoy decline, driving Next brand UK EBIT down to <£200mn in FY25E (from FY20E £412 mn).”
The analysts said: “Offsetting sales from Label, nextpay and Next International leave a flat group revenue outlook: Against this, the successful expansion of The Label and nextpay within the UK and Next International should be enough to stabilise group sales.
“However, we conclude that while Next is working hard to combat the structural shift to more intense online competition, this is likely to result in no revenue growth post COVID-19.”