Next share price: 5 things to watch out for in its 2018 results

The UK fashion retailer will report its full-year earnings on Thursday, with the company’s shareholders looking forward to an update on how the business has handled its migration of high street sales to online.

Next is gearing up to unveil its full-year 2018 results on Thursday, with its shareholders excited for an update on how the company is progressing with migrating more of its sales online and away from the high street.

Analysts are expecting the UK fashion retailer to impress investors, with investment banks forecasting the company to deliver on its earnings expectations later this week.

Next earnings guidance

Next is forecast to see a rise in revenues and earnings when it publishes its full-year results on Thursday, despite the business cutting its 2018 profit guidance in January.

On Thursday, the UK fashion retailer is expected to record a 4.2% rise in earnings per share to 433p, with revenues forecast to climb by 2.5% to £4.22 billion.

Next migrates more sales online

Next has invested a lot of capital in strengthening its online business in reaction to the heavy losses that many of its rivals have sustained on the high street.

As a result, the company is likely to reduce the overall number of high street stores, despite the fashion retailer doing its best to maintain its physical presence by integrating shops with online sales orders.

Next has managed to maintain its physical presence, in large part, because the death of the high street, which has seen the demise of many rival stores over the last few year years. This trend has enabled the fashion retailer to keep store rents low, but this advantageous climate cannot last forever.

Next suffers decline in high street sales

Sales in Next's high street stores are expected to fall in the upcoming results, even as total space has risen by 30% over the past eight years.

Online sales growth is still the key driver for the firm as the higher margin element of the business.

However, guidance for the 2019-2020 period still points to a decline, as an overall downturn in performance hits.

Competition from low-cost online rivals remains fierce

Next is facing significant competition from low-cost online only fashion retailers like ASOS, which is applying added pressure on the company to look at ways to trim the fat and cut costs.

The increased competition from low-cost rivals comes at a time when the British consumers are feeling the impact of rising inflation and stagnating wages, loosening Next's grip on British consumers.

Next admitted that rising wages of its staff members will help reduce pre-tax profit by 20% by 2020 and, in a bid to offset this, the retailer will have to increase prices by 6%, which is likely to drive sales lower as consumers look for cheaper alternatives in challenging times and hurt the company's market share.

Next’s share price

Next's shares steadily recovered from their 2017 lows, but hit a peak in July 2018 around £62.00. The decline that followed saw the shares fall to just below £40.00, giving back most of the gains made since the beginning of 2018.

This has been followed up by a steady rebound, with a dip in February to £47.30 finding buyers. Gains stalled around £52.00, just below the 200-day simple moving average (SMA) of £52.29, but it looks as if further bullish momentum is about to intervene and carry the shares higher.

The next area to watch becomes £54.50, being the highs from September to November 2018. Gains stalled here, and lower highs were created, as the shares continued their fall in the second half of the year. A close above £55.00 brings £57.00 and the area around the gap down from July 2018 into play. Above this the July peak at £61.50 is the next target.

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