Next ‘a winner’ after avoiding early discounts

City analysts praised Next for showing 'composure and discipline through the Christmas period'. Picture: Cate Gillon
City analysts praised Next for showing 'composure and discipline through the Christmas period'. Picture: Cate Gillon
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FASHION chain Next is expected to confirm its place among the high street’s winners this week after its refusal to engage in early discounting set it aside from others in the “squeezed middle” of the market.

The firm will be first out of the blocks in updating the City on Christmas trading on Friday, while wider figures are already suggesting that the improved economic climate led to a healthy interest in the sales this year.

Clive Black, an analyst at Shore Capital, said: “We would expect Next to have performed robustly and to be one of the relative winners.”

He said that high-end retailers and heavy discounters both seem to have fared well this year, but there was a squeezed middle especially among the less specialised stores.

“Next as usual showed a lot of composure and discipline through the Christmas period,” Black said. “It’s one of the mass retailers that remains on top of its game – that’s in stark contrast to what appeared to be more forced or knee-jerk reductions from Debenhams and, to some extent, Marks & Spencer.”

Despite a mild autumn that is thought to have hindered fashion sales, Next upgraded its profits guidance to the City at its last update, saying it would make between £650 million and £680m for the full year. Sales growth was expected to be between 2 and 3.75 per cent.

Black pointed out that the firm has a track record of delivering towards the top end of its forecasts, but said the robust performance was already largely priced in to the shares.

Next’s stock has risen from around 3,700p to more than 5,400p in the last year.

Evidence that falling unemployment and rising confidence has translated into retail sales has been mixed, but the latest figures show the clearance sales were more popular than last year.

The Centre for Retail Research estimated that 13.3 million people turned out for the start of the clearance sales, up 2 per cent year-on-year as bargain-hunters splashed out £2.2 billion on Boxing Day alone. Figures from retail data company Springboard put the rise at 0.5 per cent.

However, the rise in sales is likely to be larger, as more consumers than ever turn to the internet to find the best deals. Their search for bargains started on Christmas Day.

Department store group John Lewis said it saw a 19 per cent rise in Christmas Day sales – with a record 76 per cent of orders made on smartphones and tablet computers.

The group said sales in the week to 21 December were up 4.2 per cent on last year, providing early evidence that the high street enjoyed a better Christmas than the one before.

Howard Archer, chief UK economist at IHS Global Insight, said: “The initial healthy news reinforces the suspicion that the clearance sales will be strong this year – at least early on – as still squeezed consumers will be extremely keen this year to take advantage of genuine bargains in the clearance sales.”

But he added: “Interest in the sales could fall away pretty quickly once the best of the bargains have gone. This would put pressure on retailers to cut prices even more, thereby further hurting their margins.”