Next share price down, projects lower sales growth

Next Plc lowered its full-year sales guidance on Thursday after Britains second-largest clothing retailer posted a healthy increase in annual profit.

The company projected its Next Brand to deliver sales growth of between 1.5% and 5.5% in the financial year ending January 2016, down from its December forecast of revenue growth in the range of 2.5% and 7.5%.

The news come as a bit of a surprise as Next has been outperforming rival Marks & Spencer Group, UKs market leader in clothing, in recent years. However, Chief Executive Simon Wolfson explained that Nexts current product range is not as strong as last year.

Additionally, Mr. Wolfson said the company faces very tough comparable periods during the spring and summer due to last years unusual warm weather in those periods. However, he added that the same factor led to a weaker second half, particularly the third quarter.

Next, which operates more than 500 stores in Britain and Ireland, said it expects pre-tax profit to stand in the range of £785 million and £835 million in fiscal 2016.

The lower sales forecast comes amid strengthening UK job market and overall improvement in consumer confidence as the plunge in oil prices has decreased the citizens expenses. However, Mr. Wolfson outlined that there are close to no signs that customers are spending more on clothing, despite having more disposable income.

The disappointing forecast came despite a robust year for Next. The company reported a pre-tax profit of £782.2 million for the financial year ended January, up 12.5% compared to the prior year. Next said it benefited from a one-off accounting profit of £9 million.

Revenue for period edged up 7.2% to £4.03 billion, marking the first time in company history that Next has reported sales above £4 billion. The companys online business, which services around 70 countries, reported a 12.1% increase in sales, while brink-and-mortar stores generated 4.8% more revenue.

“Our experience is that starting with prudent sales budgets is the key to coping with lower sales growth. Stock purchases and other costs can then be tailored to get the business through the year in good shape,” said Mr. Wolfson.

Next gained 1.4% on Wednesday and closed at GBX 7 620 in London. On Thursday the stock was trading 3.22% lower to GBX 7 382 at 12:33 GMT, marking a one-year increase of 14.48%. The company is valued at £11.65 billion.

According to the Financial Times, the 24 analysts offering 12-month price targets for Next have a median target of GBX 7 045, with a high estimate of GBX 8 300 and a low estimate of GBX 5 500. The median estimate represents a 7.55% decrease from the last closing price.