City warms to Next as heatwave helps recovery

THE City is pencilling in stronger half-year profits at Next after the summer heatwave helped the high street stalwart bounce back from the effects of snow in the opening months of the year.

Next had less stock to place in its sale during July, leading analysts to believe that interim profits could be as much as 10 per cent higher at some £275 million. The chain was hit by the cold snap in the spring but the fall in like-for-like sales at its stores has slowed from 1.9 per cent in the first quarter to just 0.9 per cent for the first half as a whole.

Next has also continued to benefit from its online sales push, with takings from its directory arm up 8.3 per cent in the 26 weeks to 27 July, leading to total sales rising by 2.3 per cent over the period.

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Matthew Taylor, an analyst at Numis Securities, said: “Next benefited from improved high-street conditions as the sun shone through June and July against a lacklustre 2012 summer.”

But the retailer noted during July’s trading update that “weekly sales volatility” had continued. It said: “It would appear that consumers are becoming more spontaneous in their purchasing habits.

“As a result, weekly sales are more affected by short-term events such as a change in the weather, the timing of bank holidays and school holidays.”

Nomura equity research analyst Fraser Ramzan added: “Commentary with respect to the consumer appears to indicate a cautious approach to any improvement in the economy, with per-head real income cited as the driver.

“Economy-wide labour 
income and the savings ratio could be positive factors in the coming quarters despite inflation running higher than average earnings.”

Analysts will also be looking for chief executive Lord Wolfson’s take on the health of the economy after the British Retail Consortium reported a 1.8 per cent rise in like-for-like retail sales values in August.

Rebecca McClellan, an analyst at Santander, maintained her “hold” rating on the stock. “While green shoots in the UK economy may be promising, we believe Next needs to see further earnings momentum in order for the shares to outperform, in view of its upper-end valuation,” she said.

When Next issued its 
trading update in July, the company tweaked its full-year group pre-tax profit guidance to between £635m and £675m from its previously issued forecast of £615m to £665m.