Analysts offer mixed views of Nexts Q3 trading update

Analysts offer mixed views of Next's Q3 trading update

Unseasonably warm weather in October has weighed on sales of autumn merchandise at UK fashion retailer Next Plc. The group missed its third-quarter expectations and this morning (29 October) saw its share price fall 1.63% on the trading update. Analysts have offered mixed views on the results.

Conlumino consultant David Alexander:
"In view of Next’s typically stellar performances, today’s results, while not exactly a damp squib given the cautionary advice given by the retailer on 30 September 2014, do highlight a clear moderation of growth.

"Despite Next’s sustained period of success as many of its rivals falter, the volatility of trading conditions in the fashion sector means that it rarely has the appearance of complacency; it is almost unheard of for a Next trading update to come without a customary note of caution. This time around it appears that previous caution has been well-founded. Given the obvious mitigating circumstances, it would be difficult to see this slightly disappointing period as anything more than a blip, with the retailer continuing to look a good bet for strong growth in the months to come."

Investec analyst Alistair Davies:
"Q3 expectations were already lowered for Next, but a weak October means consensus expectations for FY15E will be lowered by around 3%. The read-across/outlook into Q4 is not encouraging. Lower than anticipated full-price sales mean growth forecasts for peak are lowered, and we suspect this represents a risk across the industry of a highly promotional run-in to peak. Next continues to be rightly valued on a sector premium reflecting management focus on driving marginal retail gains and shareholder returns."

Bernstein analyst Jamie Merriman:
"Brand sales were up 5.4% in the quarter, 190bps below our expectations of 7.3% and 160bps below consensus' forecast for 7% growth. This reflects worse-than- expected results from both the Retail segment and the Directory segment with weaker than expected sales in September and October due to the warm weather

"While we suspect many investors will have anticipated the reduction in guidance today given weather related weakness in September, this is a departure from Next's track record for beating and raising estimates. We expect that full-year consensus could drop around 3% on today's results. Next's Q4 guidance of 1% sales growth may prove conservative, but we will likely need to wait to see how Christmas trading and promotion develops to know more."

Cantor Fitzgerald analyst Freddie George:
"Following this update, we are reducing our FY15 pre-tax profit forecast by 3.7% to GBP775m from GBP805m taking EPS down to 373.1p from 387.5p and reducing our subsequent year forecasts by a similar amount. Our view is that the current slippage is completely due to the mild weather, the underlying trend for consumption remains positive and the comparatives for next year ease. It does appear, however, that we are seeing more extreme weather patterns."