Despite delivering comparatively higher full price sales growth in the third quarter, markets were displeased by the FTSE 100 retailer’s latest update, as unpredictable weather proved costly for its seasonal sales.
Sales from its summer clearance sale were lower than last year, a trend which the retailer said fed into the third quarter’s mid-season sale and its clearance operation.
The group delivered full prices sales growth of 1.3% over the period, with the 7.7% lower sales of the retail division partially offsetting the 13.2% higher full price sales of its online business.
Year-to-date, the FTSE 100 retailer’s shares are down 8.6% and are currently trading at £45.5p per share.
Although Next delivered a surprisingly rosy interim update, which was applauded by the likes of Neil Woodford, who has the stock within his equity income portfolio’s top 10 holdings, the retailer was not able to maintain this momentum into the third quarter.
Next predicted that sales would fall by 0.3% in the fourth quarter, the same amount they have fallen so far this year.
“Week by week sales volatility makes it very hard to determine any underlying sales trend,” the firm explained.
“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%.”
While the new guidance “may seem pessimistic”, the retailer said it was a step up from the last half of 2016 when sales were down 3.5% and 0.4% in the third and fourth quarters.
The retailer also confirmed it will continue to return surplus cash to investors with another 45p special dividend.
The decision to narrow its earning guidance is significant, according to Helal Miah of The Share Centre, because it means “they have also effectively reduced the mid-point guidance for earnings, which is what the market this morning is partly reacting to”.
“For us, these results are a reflection of the wider issues facing the retail sector,” he added.
“Investors continue to face challenges to their spending power as well as the structural shift to online shopping. Moreover, the vagaries of the British weather have only proved to be a hindrance. We have in general been fairly pessimistic towards the retail sector and nothing has really changed that sentiment. We therefore continue to recommend Next as a ‘hold’ for investors seeking a balanced return.”
