With the first trading statement now out, many are rushing to revise their view of the retail temperature. My advice is … don’t bother.
What we have learned (aka been reminded):
- Next is one of our strongest retail brands – it is therefore NOT a bellwether
- It’s statement is always the most detailed, thorough, and with an insightful narrative
- The company had a better Q4 than the Black Friday and Tesco decisions suggested (makes both even more surprising and perplexing)
- Store performance is weakening progressively and …
- … online continues to grow
What we have not learned (yet):
- As online grows, returns become a higher % of total sales so …
- … what impact will they have once netted out …
- … the headline sales increase will certainly net lower
- What did Next learn from Black Friday – will it join the promotion lemmings this year
- In a market as tight as this, a big player doing modestly better means many others must have done worse
Next has been a very unusual retailer for many years. While most of its peers struggle with cash flow, Next generates much more than it deems sensible to reinvest in its ongoing business. Share buybacks have been a company staple for years. However, when a company announces slightly better than expected numbers, and that it intends to spend £300m buying more of its own shares, a positive market reaction is guaranteed.
Very few others will be able to report figures like these. A year ago, Next’s trading statement resulted in a 10% fall in its share price – the comparatives were undemanding. These numbers are certainly better than expected but should be treated with caution, and certainly not taken as an indicator of what lies ahead.
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