High street clothing-to-homewares colossus Next (NXT) kicks off January's frenzied festive retail reporting season with a disappointing Christmas update that offers a negative read-across for apparel rivals. Shares in the Lord Wolfson-led titan are marked down 3.2% to £69.60 on concerns online arm Next Directory is maturing rapidly and faces a heightened competitive threat.

Click here to view Next's festive and fourth quarter trading statement, covering its sales performance from 26 October to Christmas Eve and setting the scene for what is expected to have been a very tough Christmas for clothing purveyors. Sticking with its policy of spurning discounts until Boxing Day, Next's full price sales did edge up 0.4% in a volatile environment while gross margins were maintained.

However, retail sales fell 0.5% and Next Directory's revenues grew by a disappointing 2%, the latter significantly shy of consensus expectations and perhaps even more surprising given the dramatic switch in broader retail industry sales from in-store to online, suggesting rivals are narrowing the gap.

Web chart - NXT - Jan 16

CEO Simon Wolfson (pictured below) says warm weather was the main reason for the difficult fourth quarter, though he fronts up by stating 'we would not want to allow difficult trading conditions to mask any mistakes and challenges faced by the business. Specifically, we believe that Next Directory's disappointing sales were compounded by poor stock availability from October onwards. In addition, the online competitive environment is getting tougher as industry-wide service propositions catch up with the Next Directory.'

Simon Wolfson - Jan 16

A seller of the stock, Haitong has previously warned Next Directory is about to go sharply ex-growth, which may or may not be the case. Today, the broker says it is 'genuinely surprised at how weak this sales figure has been, even allowing for our view that this part of the business has been showing many signs of maturity resulting from the relative un-attractiveness of its consumer credit offer, which drove the business during the downurn.'

Cash-generative Next, which will pay an extra special dividend of 60p per share at the beginning of February, still expects pre-tax profits for the year to January to come in within the £810 million-to-£845 million guidance range set in October. Given recent poor sales however, it now expects profits to come in towards the bottom end of this range at circa £817 million and has also issued downbeat sales guidance for the year to January 2017, prompting analysts to downgrade estimates.

Issue Date: 05 Jan 2016