High street woes still pull on the retailer as focus shifts to online.
Next shares fall as sales growth slows and high street continues to drag
- Next transition to becoming more of an online retailer but still suffers from the high street gloom
- However, the clothing company sticks to full-year guidance and expect full-year pre-tax profits of £727m
- We maintain a cautious stance on the retail sector and at best recommends the shares as a ‘hold’ for investors seeking a balanced return
The trading update provided by Next this morning was still highly reflective of conditions within the retail sector as sales in physical stores continued to head lower, but the pace of the slowdown quickened a little to -8% dragging the year to date figure to -6.3%.
Meanwhile online sales, for which Next has been a leader amongst traditional bricks and mortar retailers - which now generates more sales online than from the high street, saw online sales moderate slightly to +12.7% with year-to-date sales at 14.8%. With finance income also slowing down a little, total sales for the most recent period were higher by just 2%. On the face of it, Next’s figures look reasonably good compared to others on the high street, but it was nonetheless a little disappointing leaving the shares to fall by roughly 4% in early trading on a day when the rest of the market has seen strong gains.
Despite these disappointing figures, the management have kept their guidance for full-year pre-tax profits of £727m, up 0.1% on the prior year. In some ways management need to be congratulated for transitioning the group over the years to be more of an online retailer, but even the online sales this time around has been a little disappointing. Without much more from the management on what drove these numbers, we could put the blame of this on the uncertainty in the macro and geopolitical environment along with unusual weather patterns earlier in the year causing disruption to consumer’s shopping habits while online competition could be a factor too.
We have been very cautious on the retail sector for a number of years now and we don’t see that changing anytime soon. Next will continue to be a victim of lower footfall on the UK’s high streets, but while its online platform is doing well, there is intense competition coming from other online operators. We therefore still maintain our cautious stance on the shares as well and can at best recommend a ‘hold’ for investors seeking a balanced return and willing to accept a medium level of risk.
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