Good Morning,
Well those without a rocket science degree were proven right
about Next (NXT) numbers (albeit revised). The wisdom of de-risking into the
news proving worthwhile for most of the traders right up to the bell yesterday,
with the bi-polar shorts jumping on the bang wagon upon weakness today.
The re-occurring theme *(yet again) at NEXT of the margin
pressures and the retails sales growth as cautioned by management. Sales Growth up circa 4.8% on last year
but implying saturation or limited growth, with new stores contributing the
most to growth with 3.4%.
Next have almost made an outright admission that
their own brand is under pressure from other [third-party brands] labels.
Perversely Next see a benefit in calling another offering provided by them
"Label." The only benefit being the service offering including the
delivery (Next Day). Margins in the third party branded business are near 14%,
from 19% in 2014, and 11% in 2013, lower than own-brand and more importantly
expected to grow at circa 50% per annum.
NXT credit account customers have declined a further 2.4%
(74K) with cash on the increase, implying there is a loss of loyalty (remember
that). Next, without a doubt have delivered, admittedly with revised margins,
but one cannot find many reasons to hold long from now. Management leaving,
margins under pressure and an implied stagnation with some "collections
not as strong as last year.
Next's Sales Outlook, although the consumer economy looks
benign, we remain very cautious in our sales budgets. Whilst we are happy with
most of our current product ranges, we recognise that some collections are not
as strong as they were at this point last year. In addition, during the Spring
and Summer seasons, we face very tough comparative numbers from last year, when
sales were assisted by unusually warm weather. There is a potential upside in
the second half as the comparative performance last year weakens, particularly
in the third quarter.
Christos Angelides (left 6 months ago and announced here) after 28 years and only a week ago David
Keens (Finance Director) departs after an almost impossible 28 years departs in
April (as announced here.). A cursory reminder just six
months after Christos's departure, “some collections are not as strong as last
year."
Christos has moved on to Abercrombie & Fitch whom are
looking for increased exposure in Europe and an improvement in brand perception
and performance. A timely exit by both goliaths? The long-standing stable
with matched performance rewarding those for shareholders over the period
rewarded with their patience is just about to come under
pressure.
With the market, including EMC expecting so much more from NEXT the realities are certainly coming to bear.
Many thanks to those knee-jerk traders! More later...
Atb Fraser
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