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Next reports disappointing performance in run up to Christmas

Next Warrington - 725 x 500

High street clothes chain Next blamed warm weather for a sub par performance in the run-up to Christmas as it posted a fall in store sales and sharp slowdown in its Directory business.

The normally reliable retailer also cited a lack of stock and increased online competition as reasons for full-price sales falling 0.5 per cent across its stores in the 60 days to December 24.

The festive performance means the group expects full-year profits to come in towards the bottom end at £817million, although this would still be a 4.4 per cent hike on the previous year.

Next, which holds off from discounting until Boxing Day, said: 'Whilst warm weather may have been the main reason for a difficult fourth quarter, we would not want to allow difficult trading conditions to mask any mistakes and challenges faced by the business.

'Specifically, we believe that Next Directory's disappointing sales were compounded by poor stock availability from October onwards. In addition, the online competitive environment is getting tougher as industry-wide service propositions catch up with the Next Directory.'

The overall performance for full-price brand sales across stores and Directory were 0.4 per cent higher for the 60 days to Christmas Eve - a sharp slowdown on the 3.3 per cent growth seen in its half-year to July.

This has left sales for the year to date up 3.7 per cent, below what had been expected.

The group guided for overall brand sales across its 540 stores and Directory arm for the year to January 2017 to be between 1 per cent and 6 per cent higher.

Independent analyst Louise Cooper said: 'First of all Next is supposedly brilliant at logistics and is one of the reasons to buy the share. And so why did it have problems with stocking? And secondly the problem with consumers moving to online shopping is that they are only one google search away from a competitor.'

In early trading, Next shares topped the FTSE 100 fallers board, down over 5.0 per cent, or 375.5p, at 6,814.0p.

Despite the rough Christmas trading season, the retailer has declared another special dividend of 60p per share to be paid next month.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, added: 'Next has provided a stark reminder that the situation within retail is precarious and in the process has taken some of its competitors with it on a downward trend.

'Warm weather has compounded the company's own admission that its stock availability has more recently been insufficient, whilst there are also somewhat ominous, if unsurprising, comments on the ferocity of competition around its flagship Directory business which are unsettling.

'Some of this caution has been factored into the share price, which had dipped 6.5 per cent over the last three months even prior to today's fall, one borne out of disappointment.'

The difficult festive season contrasts with a strong Christmas in 2014 for Next, when it shunned the Black Friday events in November to keep its stock at full price.

Read the full trading statement here.

Next is the first of the major retailers to unveil festive trading figures and sets the scene for what is expected to have been a tough Christmas for clothing chains after mild weather in November and December.

The unusual weather conditions led to widespread discounting on the high street as stores looked to shift stock in the run-up to Christmas.

Department store chain John Lewis will reveal how it fared tomorrow, while high street bellwether Marks & Spencer gives its verdict on festive trading on Thursday.

The warmest December on record is expected to have led to more sales pain for M&S in its general merchandise and clothing arm, with the City pencilling in a 2 per cent drop in the division over its third-quarter.

But sales in the division may have plunged by as much as 5.5 per cent, according to one broker.

M&S shares were among the FTSE 100 fallers again today, dropping 5.7p to 429.6p.

Source : Mark Shapland – ThisIsMoney

05 January 2016

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