Next reported better than expected results this morning, shrugging off pessimism around its expected sales in August. This chimes with other numbers, like the official retail sales figures and the anticipated positive impact of the hot weather in August. Next reported first half full price sales up 4.5% on last year and says it now expects full prices sales to be up 3%, well ahead of the 2.2% expected in May.
“On the one hand this consistent raising of guidance throughout the year indicates positive momentum, but on the other it tends to suggest that Next was overly cautious after suffering its worst year in 25 years in 2017,” comments Neil Wilson, chief market analyst at Markets.com. “It looks as though the guidance at the start of the year was overly pessimistic.”
Wilson notes that profit expectations have shifted materially with management raising its central guidance for the full year profit before tax to £727 million, which is up from £717 million in May.
However, those about to pile into Next shares should also be cautious: even the management team at Next noted that UK retail as a sector is both volatile and at the mercy of powerful structural and cyclical changes. The warm summer has helped out retailers, but management at Next thinks it can ‘roughly balance the bad news with the good’, which is hardly a glowing endorsement of Next shares’ performance in the coming months.
Retail delivered a 7% decline for Next, with much of the real growth coming from online sales – online profits were also substantially up, easily outstripping retail, with growth of 21% versus a 23% SLIP in retail profits. This tells you all you need to know how about how UK retail shares are really doing. Next is very much the retail space in microcosm, as Wilson puts it: high street sales are collapsing, while online is increasingly dominant.
“The company has also announced some interesting initiatives including the transfer of online best sellers into stores and a look at whether its shops could serve as delivery points for non-competing third parties, a potential way of addressing the problem of getting shoppers through the door in the first place,” says Russ Mould, investment director at AJ Bell.
Next shares had peaked at around 6224, a 52 week high, in June. Since then they have been in a steady decline as the clouds of gloom continued to swirl around the UK retail market. At the time of writing, Next shares were trading at 5532, up 7.96% on the open of the market.
