Fashion-to-homewares giant Next (NXT) slumps 4.7% to £65.40 after warning third quarter sales are running below forecasts. Unseasonably warm autumn weather is to blame and, should it continue, there's a risk the high-flying retailer could cut full-year profit guidance.

In an unscheduled announcement ahead of its third quarter trading update (29 Oct), Next says cooler weather in August drove a fortnight of 'very strong' weeks. However, this has been followed by poorer weeks in the more important month of September caused by unseasonably warm weather.

The upshot is third quarter sales to date are up 6%, good going but lower than the 10% previously forecast. Full-year pre-tax profits should still weigh in between £775 million to £815 million, so long as the weather turns and lost sales are regained, though if high temperatures persist throughout October, earnings guidance is likely to be lowered.

Web chart - NEXT - Sep 14

This should prove to be no more than a minor setback for the high street chain. Run by boss Lord Wolfson, Next has built an impressive track record of growing earnings while using its strong cash flows to raise dividends, ordinary and one-offs, plus fund regular share buybacks.

Freddie George, analyst at Cantor Fitzgerald, remains positive on the stock and retains a £74.00 price target. He is also sticking with his £805 million taxable profit and 387.5p earnings per share forecast for the year. The retail analyst argues that 'the impact of the mild weather, which we have been flagging up over the last two weeks, is impacting all retailers in the UK and is only a temporary phenomenon.'

He argues Next's underlying trends remain positive, notably the ongoing strong performance of catalogue and online arm NEXT Directory, and says investors should be more concerned about the negative read-across for high street rival Marks & Spencer (MKS), off 2.3% at 405.9p, and Debenhams (DEB), down 2.17% at 58.55p.

Issue Date: 30 Sep 2014