Erstwhile high street darling Next's (NXT) poor run continues, the shares marked down 11% to £59.30 as the retailer again downgrades guidance following subdued trading over the first quarter of 2016.

A cautious assessment on the prospects for online and catalogue business NEXT Directory, being affected by a tougher competitive environment, and CEO Simon Wolfson's downbeat outlook, conspire to trigger heavy selling ahead of the long Easter weekend.

Results for the year to January 2016 from Leicester-headquartered Next. These reveal in-line pre-tax profit, up 5% to £821.3 million, as well as a 5.3% hike in the total dividend to 158p, a more modest increase than shareholders may normally expect.

Alarmingly, Next has also lowered its year to January 2017 guidance for the second time in three months, having kicked off the frenzied festive retail reporting season with a disappointing Christmas update.

The high street bellwether now expects to generate pre-tax profit of between £784 million and £858 million; the mid-point of the range is a hefty 3.6% below consensus and represents flat year-on-year pre-tax profit growth.

Negative sentiment towards the stock also reflects the increasingly cautious outlook for NEXT Directory, for so long the growth engine of the group, whose performance was affected by mild November and December weather, poor stock availability from October onwards as well as rivals stepping up their online games.

Indeed, in a sub-section dubbed 'The Changing Face of Next Directory', Lord Wolfson of Aspley Guise concedes growth in the core UK Directory business has inevitably slowed as the business has matured.

'Partly this is as a result of competitors catching up with our delivery and warehousing capabilities; partly as a result of changes in the ways customers are shopping online. It is this last point that provides us with the opportunity to improve the business going forward,' he says.

Scope for self-help will encourage investors, though with the UK credit customer base deteriorating, there's a need for a fairly major upgrading of NEXT Directory, which will mean added costs in the current year 'that are unlikely to generate a profit until the following year'.

Also spooking investors is Wolfson's warning 'the year ahead may well be the toughest we have faced since 2008', since 'the outlook for consumer spending does not look as benign as it was at this time last year.'

The respected retailer says that 'in addition to our generally more cautious outlook for the economy, we also believe that there may be a cyclical move away from spending on clothing back into areas that suffered the most during the credit crunch', suggesting consumers may now be choosing to spend on eating and going out, rather than on fashion items.

Web - NXT - March 16

Issue Date: 24 Mar 2016