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How to trade the Next share price as UK retailer report earnings

Business on the UK’s high streets continues to be challenging. Just last week, Topshop and Topman reported a combined £505 million loss in 2018 - a huge drop from the previous year’s £3.8 million loss. 

Macroeconomic conditions, Brexit fears and a weakening pound have all impacted consumer spending. Despite this, Next’s [NXT] share price is up this year, in stark comparison to Moss Bros, which has seen its stock struggle. With the two retailers updating the market this month, who’s got things all sewn up?

 

How have Next and Moss Bros been performing?

Next’s share price is up 47% this year, outpacing high street peer Moss Bros, which has dropped 18%.

In July’s Q2 results, Next saw full-price clothes sales up 4% year-on-year thanks to an over performance in end-of-season sales. Following the strong results, Next increased its full year profit guidance by £10 million to £725 million. Earnings per share guidance was increased from 3.4% to 5.2% year-on-year.

 

Moss Bros hasn't been as lucky. Earlier this year it reported an annual loss before tax in 2018/19 of £4.2m compared to a profit of £6.7m in 2017/18 - its first loss in 8 years. For the 12 months up to 31 July, total revenue was down 2.1% year-on-year, to come in at £129 million. Gross margin fell 2.3% and earnings per share were negative, coming in at -3.83p.

The one bright spot was Moss Bros' e-commerce business that continued to grow, up 19.6% to represent 14.5% of overall business.

 

What to look out for in the Next results?

Next has continued to invest in its omnichannel strategy, which lets shoppers choose when and where they shop. This has helped Next remain relevant among younger shoppers who expect flexibility. Online sales leapt 12% in Q2 and will be a key metric to look out for in Thursday’s half-year results.

Retail store sales have continued to decrease for Next - down 3.6% in Q1 and 4.2% in Q2. To get shoppers back into stores, Next has spent a disproportionate amount on its leisure business. Shoppers will start to see cafes and other initiatives in stores as Next diversifies its revenue stream. If this translates to more sales at Next's bricks and mortar stores, then expect a bounce in the share price.

-4.2%

Next's retail store sales decrease in Q2

 

Moss Bros tailors leadership team

Over at Moss Bros, the tailoring brand has made some changes to its board. In the reshuffle, Avis Darzins joined on 1 September as non-executive director. Darzins is a business transformation specialist and joins from Accenture where she masterminded Banana Republic's UK launch. While Darzins won't have had any impact on next week’s interim results, investors will be keen for any insight on how she might patch up recent losses.

 

Who to back?

Next trades at 14x earnings and, given its recent strength, suggests it could be undervalued. A 14-day RSI of 68 suggests decent momentum, although the firm will need to pull off a reasonable earnings beat this week for further short-term gains.

 

 NextMoss Bros
Market cap£8.18bn£19.40m
Profit margin14.17%-2.98%
EPS (TTM)433.00-3.80
Return on equity (TTM)113.93%-12.19%

Next & Moss Bros share price vitals, Yahoo finance, 17 September 2019

 

Moss Bros, on the other hand, will need to demonstrate that it can improve efficiency. Right now the share price is down 57% from its 52 week high. Longer-term, investors will be hoping that Darzins can turnaround the struggling retailer. Four years as director of business transformation at Sky could stand here in good stead.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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