Nearly £300mln was wiped from the value of Next PLC (LSE:NXT) after the clothing retailer downgraded earnings guidance by £10mln.
That may appear a knee-jerk reaction; however, the group has tended to under-promise and over-deliver under boss Simon Wolfson.
And Next hasn’t been alone in tempering the expectations: results season has seen a slew of British businesses resetting earnings targets as business normalises after Covid and following the onset of war in Ukraine.
In fact, Next’s mini profit alarm was a result of the conflict. Specifically, it centered around the suspension of its business in Ukraine and Russia, which will cost about £65mln, although some of this will be offset by an improved UK retail performance.
READ: Next lowers profit and sales guidance as war in Ukraine weighs
Steve Clayton, a select fund manager at Hargreaves Lansdown said there will be “an obvious hit to be taken,” with a suspension of operations there, but added the “business is more than strong enough to cope”.
It did stress clearly, however, that predicting performance for the next nine months is extremely difficult, with several factors making it almost impossible.
One of those factors was inflation, with the company set to increase its prices by 8% in the second half of the year.
“For Next, the spectre of an impending cost of living crisis driven in part by rampant inflation has weighed heavily,” with “rising costs having a likely impact on the consumer’s propensity to spend,” according to Richard Hunter, head of markets at interactive investor.
Rising prices, however, will likely be a necessity, as it wrestles with its own increased expenditure.
Higher freight costs, increased spending on manufacturing and pressure on UK wages will be factored into the increased prices, which might push demand lower as the cost-of-living crises forces consumers to think twice about where to spend their money.
Russ Mould, an investment director at AJ Bell notes, however, that the price increase will “come in below the current rate of headline inflation.”
He adds that this represents the retailer’s commitment to “providing the right product at the right price in the right format for its customers.”
However, stock turnover and management will be key to ensuring it does not end the seasonal periods with extra levels of discounted stocks.
But as Hunter added, Next is a “tight ship and a well-regarded business” with it more than likely it will “continue to capitalise on the factors within its control.”
So, while the market has seemingly latched onto the profit warning issued, general consensus among analysts is that if there was ever a company to manage it well and effectively, it is Next.
Shares were down 3.10% to 6,186p in afternoon trading.