Next Q1: What the analysts say
Analysts have mixed opinions on Next's future
UK fashion giant Next Plc has continued its upward trajectory during the first quarter, after booking a double-digit increase in sales. But despite the strong performance, analysts have mixed opinions on the what the future holds.
Conlumino analyst David Alexander:
"While the future for Next undoubtedly looks bright, it is unlikely to be plain sailing. The climate of discounting amid intense competition on the high street led to the British Retail Consortium's shop price index falling by 1.7% during March, its sharpest decline since the Index began in 2006. With the success of discount fast fashion retailers like Primark fuelling an escalating price war amongst fashion retailers, Next is unlikely to remain immune and its margins will surely come under some pressure. That said, recent profit increases at Lord Wolfson's powerhouse show that if any retailer is equipped to whether this storm, Next is."
Bernstein Research analyst Jamie Merriman:
"These are another very strong set of results from Next, with retail like-for-likes performing particularly well and significantly above consensus expectations, and we expect the stock to be up today on increased guidance. We expect these results will be well received by the market and suggest that Next has continued to gain share in the UK apparel market. We expect consensus earnings estimates will come up by circa 3% given the new guidance.
"Given there is a 1.5%pt increase to brand sales guidance but a 3%pt increase to profit before tax guidance, we believe management probably feel the retail like-for-like performance will provide better than previously anticipated operating leverage, while the good sales growth suggests there is likely a clean stock position. While management struck a somewhat cautious tone given that Q1 benefited from a weak comparison, we expect investors to be encouraged by Next's willingness to increase guidance this early in the year."
BofA Merrill Lynch analyst Richard Chamberlain:
"We see circa 3% upside to consensus PBT due to the strong Q1 and improved UK consumer outlook. Next is cautious on its forthcoming tough Q4 comparable but even so we think this is a strong statement and should be well received by the market particularly given the recent pause in the share price.
"Next total Retail sales were up 8.8% year-on-year versus our 7.8% estimate, with implied like-for-like sales up circa 5.5% versus our 4% estimate. We think Next is benefiting from another strong product offer and from a wider range and deeper buy in homewares which is benefiting from an increase in UK housing activity."
Investec analyst Kate Calvert:
"Another nudge up in guidance after a stronger than expected Q1, benefiting from weak comparables and weather differences compared to last year. While comparables will get tougher as the year progresses, we have increased our FY15E profit before tax forecast by 3.6%. We view Next as a core holding, but with the shares trading on a sector average per rating, we believe the valuation is up with events and retain our Hold recommendation."
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