Next (LON:NXT) guidance is becoming almost as volatile as the ‘fast-fashion’ trends Britain’s No.1 clothier is pedalling furiously to catch up with.
Weather again
The more optimistic gloss on full-year expectations coating its half-year report is gone from Wednesday’s final interim update, even though the group reports a second consecutive quarter of hard-won full-price sales growth, tightening odds that it will hit the slightly negative midpoint of the year’s growth range. But Next’s run of bad luck with the weather also struck again in October. Slightly more clement conditions than usual whilst Next was beginning to roll out winter ranges pulled trading below more bullish third quarter forecasts. In turn, gloomier expectations for all-important Christmas and spring trading that had begun to lift in recent months have been reinstated.
Directory continues to shine
It’s worth noting that the upward rating implied by the shares’ 33% rise between the beginning of August and early October required a better woven performance over the quarter than the one reported. Consequently some of Wednesday’s 6%-9% stock slump can be put down to a correction of over-optimism than an outright rejection of the level of growth Next continues to forecast for the year. Another double-digit rise in Directory sales, the driver of overall growth this year, has emboldened the group to lift its profit forecast despite trimming 25 basis points off the better end of the sales outlook.
Guidance upgrade
However, it is almost certainly the more pessimistic tint to guidance for Q4 that has tipped improving sentiment on Next shares off a precarious perch.
We believe the most reliable guide to sales for the balance of the year are the full price sales for the year to date, which are down -0.3%.
Even the fresh round of special dividends announced on Wednesday and confirmation that the remaining £25m of a mooted total of £50m in buybacks would be triggered hasn’t cushioned the stock. We would even suggest that now, having overshot on the upside somewhat, that sentiment on the shares price—down 13% in a month—has swung too far into pessimism. With the year’s profit decline now forecast to be more contained than before after a helter-skelter year and a superior cash generation trend intact, we see Next shares as likelier to fade into year-end than dive.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.