Out-of-favour clothing colossus Next (NXT) has trimmed its annual sales guidance for the second time in less than two months following disappointing first quarter sales. The Lord Wolfson-led retailer also issues another sobering assessment of the consumer outlook, sparking fresh fears over the health of the high street.
Alongside March's full-year results, Next once again lowered its year to January 2017 guidance, forcing SHARES to turn negative on this long-standing retail favourite near-term. We expressed concerns over CEO Simon Wolfson's downbeat outlook statement – the retail grandee predicted this year would be the most difficult since the financial crisis - as well as the increasingly uncertain prospects for online and catalogue business NEXT Directory.
The main engine for growth over the past decade, Directory's growth has slowed sharply amid heightened competition, not only from pure-play online fashion purveyors, but also from traditional operators such as Debenhams (DEB) and Marks & Spencer (MKS), who've upped their e-commerce games.
News that Directory's sales rose 4.2% in the first quarter, helped by better stock availability since Christmas, helps Next's battered shares recover ground, up 3.6% to £51.55, though the update validates our recent bearish call.
Next reports full price sales down a disappointing 0.9% over the three months to 2 May, retail sales reversing by a worse-than-expected 4.7%. This reflects the impact of much colder weather in March and April which reduced demand for clothing over the Easter holiday period.
Simon Wolfson again issues a cautious outlook. He believes 'it is unlikely (but possible) that sales will deteriorate further, and we have seen a significant improvement over the last few days as temperatures have risen. However, the poor performance of the last six weeks may be indicative of weaker underlying demand for clothing and a potentially wider slow-down in consumer spending. Given this uncertainty, we think it is prudent to widen and lower our full price sales guidance range to -3.5% to +3.5%.'
Accordingly, Next's pre-tax profit guidance is revised down from a £784 million to £858 million range to one of between £748 million and £852 million. Weaker demand for clothing spells bad news for the entire general retail sector, one of the stock market's poorest performers in 2016 thus far, with fashion purveyors facing a softer demand outlook, not to mention a higher wage bill and a US dollar sourcing headwind.