4th Aug 2022 10:47
(Alliance News) - Next PLC returned to form on Thursday with a small, but reassuring guidance hike, though in its typical fashion, it still managed to come across somewhat cautious to prevent "over exuberance".
Next shares were 0.9% higher at 6,804.00 pence each in London on Thursday morning.
Next has a reputation for damping enthusiasm with a cautious outlook, before impressing the market with raised guidance. So it came as somewhat of a shock when, in its full-year results back in March, the retailer lowered its annual outlook.
In the outlook attached to the results for the year that ended January 29, Next cut pretax profit guidance by GBP10 million to GBP850 million.
However, guidance has returned to that previous forecast. Next raised its profit outlook by GBP10 million on Thursday.
"Two things are close to becoming expected from Next updates – an upgrade to profit forecasts, along with a cautionary outlook to temper over exuberance," Interactive Investor analyst Richard Hunter commented.
"A deteriorating UK economy has resulted in several examples of slowing retail sales and, while some of the competition may have been removed over the last few years as smaller retailers have gone to the wall, the propensity of consumers to spend on more discretionary items is likely to drop as the financial pressure on individual spending increases."
Hunter added: "With this in mind, the market consensus of the shares as a 'buy' reflects ongoing optimism in Next's continuing ability to under-promise and over-deliver."
AJ Bell analyst Russ Mould said Next has mastered the "art of expectation management".
"Bosses at Next are well-versed in how to operate successfully as a public company," he said.
"This helps explain how, right in the middle of the worst cost-of-living crisis in a generation, the company has been able to deliver better-than-expected numbers."
Next said full-price sales for the second quarter that ended July 30 rose 4.5% year-on-year, slowing from a 22% climb in the first quarter, but still topping expectations. Compared to pre-Covid times, second-quarter full-price sales were 26% higher.
Full price sales beat forecasts by GBP50 million.
The retailer put this down to warm weather, which led to consumers heading out more, sprucing up their wardrobes as a result.
Next added: "Sales in the first half of the year have been dominated by a sharp reversal of last year's lockdown trends. Sales in retail stores recovered, while online growth appears to have reverted back to its longer term trajectory. Many product trends have also returned to pre-pandemic norms. Lockdown winners such as home and sportswear retreated, while formalwear returned to favour. As anticipated, online returns rates and surplus stock also reverted to pre-lockdown levels."
Some one-time stalwarts have exited the UK high street, with Debenhams and Topshop among the victims of Covid and a wider shift away from physical shopping. This has boosted Next's market share.
Analysts at Shore Capital Markets said Next's bullish update contrasted with a somewhat downbeat one from Frankfurt-listed online-only retailer Zalando SE.
Zalando said its second quarter revenue fell 4.0% year-on-year to EUR2.62 billion. Its adjusted earnings before interest and tax tumbled 58% to EUR77.4 million.
Despite the earnings slide, Zalando shares were 8.3% higher on Thursday morning, though down nearly 70% since this time last year.
Shore added: "While the online pure player has missed expectations in the first half and counts on H2 to pick up the slack, Next remains conscious of the cost inflation impact on consumer spending and the one-off favourable effect of the unseasonably hot weather that has driven Q2 over performance."
By Eric Cunha; [email protected]
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