Next's shares tumble after company issues profit warning

Helen Cahill
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Next said its profits for 2016 would be at the lower end of its forecasts

Next's shares have taken a hammering today after the retailer issued a profit warning.

The retailer cut its profit forecast for 2017-18 to a range of £680m-£780m. Analysts had estimated the forecast would be £784m. Following the announcement, Next's share price tumbled by 12 per cent.

Next's shares have now fallen nearly 50 per cent since a high of 8,175p in December 2015.

Christmas wasn't as merry as high street retailer may have hoped. Full price sales fell 0.4 per cent during the crucial festive shopping period.

Read more: Retailers' share prices stung by the rise in the national living wage

Profits for 2016 will be £792m, at the lower end of Next's original forecasts. This figure could fall by £7m "depending on trade in January", the company added.

For the year to date, total sales were up 0.4 per cent but full price sales were down 1.1 per cent on the year before.

"In these circumstances, we are budgeting for Next Brand full price sales growth (at constant currency) in the year to January 2018 to be between -4.5 per cent and +1.5 per cent," Next said.

"The mid-point of this range is -1.5 per cent, which is marginally worse than the current year's performance."

Next on Brexit

Following the devaluation of the pound, Next said it expects inflation to hit its customers.

The retailer said it expected prices to rise five per cent at the most, hitting sales by 0.5 per cent due to a "squeeze in general spending as inflation begins to erode real earnings growth".

Read more: John Lewis hits out at Labour MP over Christmas jingle

Next didn't seem happy with the information it had on the government's approach to Brexit, saying: "In the light of the exceptional levels of uncertainty in the clothing sector and with little visibility of the approach the UK government will be taking to Brexit, we have reviewed our approach to the distribution of surplus cash.

"We believe that in these circumstances it makes sense to give some additional certainty to shareholders over cash distributions.

"We therefore intend to return surplus cash to shareholders by way of four quarterly special dividends of 45p each."

The first special dividend will be paid at the beginning of May.

Hit from the national living wage

Brexit isn't the only cost problem Next is facing – the national living wage, business rate rises, the apprenticeship levy and energy taxes are all causing difficulties.

Combined, they will add roughly £13m to Next's costs in 2017-18. The business will also be spending £10m on improving its website and its marketing online.

What the analysts said

Richard Lim, chief executive of Retail Economics said: "Despite positive consumer momentum in the run-up to Christmas, these latest figures confirm that underlying conditions on the high street remain desperate for clothing and footwear retailers."

Cantor Fitzgerald analyst Freddie George said: "The trading update was disappointing and worse than our forecasts despite sales being up against relatively easy comparatives.

"The brand is, in our view, not broken even if it has lost its edginess against some of the mainstream competitors. It is being impacted by a more competitive and difficult market, which we had expected would have been more robust in the lead up to Christmas."

He downgraded Next's target price to 4,600p from 5,200p.

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