Back in October, Next announced that its annual profits would come in lower than expectations. Subsequently, since the end of October the weather in the UK and Europe has continued to be exceptionally mild for the time of year, and the issues around the company's unsold winter collection still hangs over Next.
Even with a profit warning, the company is still the 13th best performing equity in the FTSE 100 with returns-to-date of 22.85%. Institutional analysts still remain in favour of the company with ten rating the company as a buy, 17 a hold and only two as a sell. The average institutional price target for Next is 7.5% above the current price at £69.13.
One of the consequences of the growth of internet sales has been the need to build a hub in Belfast to ensure that distributions can be completed for next-day deliveries. Another area of expansion that Next has been undertaking is a greater retail floor space for its outlets. Over the last five years the average floor space of its outlets has increased by 22%. A figure of 58% of this new floor space has been allocated to Next’s home goods rather than its fashion department.
Retailers have seen increased demand in online shopping, but Next stated that it sees the continuation of its stores as important as it helps generate customer recruitment and loyalty, and in some instances can prove to be more cost-effective.
At the moment, just over half of the online purchases done at Next are ‘click and collect’ and a slightly smaller number are ‘click and deliver’. A survey by DHL has shown that Germany leads the way, as on average it has purchased 12 times in the course of a year in comparison to 8 purchases for the average UK shopper. Per year, it expects Germans to make 24 purchases and Brits to make 14.
One ray of light might be the strong US retail sales figures that were announced last week, regardless of the disappointing figures from Black Friday. This morning has also seen the UK post better-than-expected monthly retail sales figures too. The majority of Next’s move this year has been lateral as every time the shares have dropped below £64, buyers have emerged before any real attack of the £62 level has been able to materialise.