One of Shares’ key selections for 2019, retail bellwether Next (NXT) has proved a stellar year-to-date performer, yet the shares fell 4.1% to £59.16 this morning on what appears to be profit-taking.

Given the challenging backdrop for retailers, first half results from the clothing and homewares colossus are pretty impressive, showing sales and profits progress and with full year guidance left unchanged.

Yet the absence of upgrades and the cautious outlook statement, where CEO Simon Wolfson (pictured below) highlighted a disappointing first few weeks of the Autumn selling season, conspired to send the stock lower.

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Results for the half ending July 2019 showed 12.6% growth in online sales, the real growth driver for Next these days, while retail sales declined by 5.5%. Pre-tax profit nudged 2.7% higher to £320m, higher than the £318m called for by Shore Capital.

Furthermore, Next maintained its full year guidance for pre-tax profit to be up 0.3% at ‘around £725m’ and earnings per share growth of 5.2% with a boost from share buybacks.

MANAGING EXPECTATIONS

However the canny Wolfson, always sure to manage investor expectations, also cautioned.

‘At this time, it is impossible to predict whether the UK will leave the EU with or without a deal and equally difficult to predict the effect no-deal might have on the wider UK economy. So, our guidance comes with one important caveat: we have not accounted for the possible positive effects of a deal or possible negative effects of a no-deal Brexit.’

In addition, Next reckons the current third quarter is likely to be ‘our weakest. We believe that our strong performance in July bought forward some August sales and that the warm start to September has adversely affected the last couple of weeks.’

THE EXPERTS’ VIEW

Shore Capital commented: ‘Given that the second quarter trading statement at the end of July resulted in a small upgrade to full year profit guidance, we did not expect further upgrades ahead of the peak trading season. These are a solid set of results despite the tough trading challenges and structural headwinds in the sector.’

Meanwhile Russ Mould, investment director at AJ Bell, said: ‘Next flags a weak start to the autumn season but reassuringly says there is no change to its earnings guidance. Alas that isn’t enough to keep the market happy which explains why the shares have fallen on the news.

‘We’re now heading into a very important season for Next as the switch from the summer to colder weather typically acts as a sales catalyst with customers stocking up on jumpers and coats.

Next, alongside many other retailers, will be keeping its fingers crossed that sales pick up and also that Brexit doesn’t cause a spike in inflation and logistical problems at ports. In the grander scheme of things, Next is managing to cope quite well with the structural challenges facing the retail sector.’

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Issue Date: 19 Sep 2019