29th Sep 2022 12:29
(Alliance News) - Next PLC has a history of under promising and over delivering, but despite this reputation, the market was still spooked by the latest guidance cut.
In years gone by, the clothing and homewares retailer has warned on a tough consumer backdrop, before knocking earnings out the park - to rave reviews from analysts and investors alike.
There appears to be a conviction that things are different this time and this warning will not be met with a guidance beat. The stock slid 9.4% to 4,822.00 pence each on Thursday morning in London. It is down about 40% so far this year.
A cost-of-living crisis, as inflation continues to move at full throttle, is expected to hit the retail sector hard, and Next believes it will not be spared.
The FTSE 100 listing lowered annual guidance as it believes tough trading in August and cost-of-living pressures will offset any boost from recent UK government stimulus measures.
Full price sales advanced 12% year-on-year in the first half ended July 30, though the company now expects a decline for the second half.
Full price sales are to shrink by 1.5% year-on-year. It had previously guided for 1% growth.
Next also lowered bottom-line guidance. It now expects annual pretax profit of GBP840 million, down from the previous GBP860 million guidance, but up 2.1% on last year.
Despite the guidance cut, analysts believe Next has the potential to come out of the crisis as a stronger outfit.
"Supporters of the stock remain in force given the company's historic ability to emerge stronger after periods of turbulence, with the market consensus of the shares as a buy remaining in place," interactive investor analyst Richard Hunter commented.
Liberum is among those to have a 'buy' recommendation on the stock. While noting the guidance cut, it also flagged the potential for long-term growth at Next.
"We believe Next is at an inflection point in its growth and profitability and the business is now set to deliver double-digit returns to shareholders as the LABEL platform continues to drive sales growth and profitability dilution from retail stores is over, while progressive service models like Platform Plus and Total Platform provide margin and [return on capital employed] upside," Liberum said.
One thing Next has going for it is its "multi-channel" offering, analysts at Shore Capital Markets commented.
After a margin warning from boohoo Group PLC on Wednesday, Shore noted physical retailers "are back in vogue".
"We continue to see multi-channel offers as more competitive than online pure players," Shore said.
Shore rates Next at 'hold', believing its shares to be fairly valued.
By Eric Cunha; [email protected]
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