Analysts have not gone easy on Next's "miserable" results

Helen Cahill
Follow Helen
Wind And Rain Hit The UK
Things are looking gloomy on the high street for Next (Source: Getty)

Analysts have not pulled their punches this morning in reaction to Next's announcement that sales fell 3.5 per cent in its third quarter.

Retail Economics' chief executive Richard Lim described Next's sales growth as "miserable", and said that the "conditions on the high street remain desperate".

Next's share price has been climbing this morning, however, and is up four per cent on the back of the news that the company had strong sales in October.

But analysts were concerned about the broader picture at the high street retailer.

George Salmon, equity analyst at Hargreaves Lansdown, said 2016 "is proving to be something of an annus horribilis for Next".

"While a tough quarter was expected, the group has been forced to trim sales expectations for the year," Salmon said. "CEO Lord Wolfson is worried that the clothing sector could be seeing an underlying fall in demand."

Read more: Next has a stormy third quarter as warm weather weighs on sales

"With the weaker pound meaning imported textiles are now more expensive, Next will need to make some tough choices on how it tackles this extra cost."

Investec analyst Alistair Davies pointed out that Next's performance in its homeware had started to move back in line with its clothing, "suggesting trading is challenging across the Next brand". He gave the stock a "sell" rating, with a target price of 4,580p. Next's share price is currently around 4,971p.

"Better-than-expected performance on cost savings prevents greater downgrades," Davies said. "We continue to remain cautious."

Tony Shiret at Haitong research said that the flat sales growth "is the first that we can remember over the medium-past and speaks to the structural issues in this part of the business."

Read more: Marmitegate is the "thin end of the wedge" for the retail industry

"Clearly investors are by now in total awareness of this issue but we still found today’s disclosure slightly shocking – we were forecasting four per cent in the third quarter and the consensus was three per cent," Shiret said.

"Next have arguably the best online to store proposition of all of the clothing retailers: free next day delivery into store is brilliant compared to some of its competitors," said Paul Thomas, senior consultant at Retail Remedy.

"But great value delivery and convenience doesn't count for much if the product isn't right."

Related articles