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Next share price: can the rally continue?

Next share price: can the rally continue?

The Next share price shifted higher on Monday, after Credit Suisse lifted its rating on the company from ‘underperform’ to ‘neutral’. It also hiked its price target on the Next shares from 5,600p to 6,000p.

Positive first-quarter results lift Next share price

In May, Next posted a 4.5% jump in overall sales for the first three months, and that easily topped the 3.2% forecast. The company claimed the unusually warm weather over Easter assisted the business. 

But the warm weather still wasn’t enough to help out the high street division, which saw sales slide by 3.6%. Next isn’t the only company suffering from poorer sales on the high street; it is in fact becoming the norm for the industry.
On a more positive note, online sales increased by more than 11% in the three-month period, and that is a clear sign the company is changing with the times. Next will release its first-half figures on Thursday, and traders will want to see if the positive run has been maintained.
The Next share price has been pushing higher throughout 2019, and good numbers on Thursday could see it retest the 6,227p area.

Wider retail sector continues to struggle

The retail sector has taken a knock recently, partially due to e-commerce, but also because of consumers spending less on account of the uncertainty over Brexit. The economic indicators show the jobs market is very strong – the jobless rate is the lowest since the 1970s, but people are curtailing their spending. 

In recent months, Ted Baker issued a profit warning, Topshop and Topman posted an annual loss, in addition to Primark posting a quarterly fall in like-for-like sales. Looking away from the traditional fashion houses, Boohoo, the online retailer, registered a 40% jump in full-year profit in April, and earlier this month it upped its revenue guidance. 

Online sales could be key for the retailer

Next need to take a leaf out of Boohoo’s book, as online shopping is really taking off. Footfall on the high street and at shopping centres is in decline, so perhaps Next might look to close underperforming stores. 

If the business is able to successfully increase its online sales, it could further help the Next share price. Online shopping is attractive for businesses on account of the lower costs, but it must be run effectively, otherwise it can cause major headaches for management. 

ASOS issued two profit warnings this year, partially triggered by an "overhaul of the infrastructure". Investor confidence in the company suffered because of stock shortages in the US, as well as issues in switching from manual orders to automated orders in Germany. 

Ocado, the online grocery, took a hit earlier this year when a fire broke out at its operating site in Andover. E-commerce has its advantages, but it also has its own issues, and the smoother running of the business is essential.

Is Next prepared for a no-deal Brexit?

The CEO Simon Wolfson confirmed the group is prepared for a no-deal Brexit, and that has assured traders to some extent, as there is chatter that some businesses are nowhere near ready for such an event. Mr Wolfson feels the tariffs on EU imports will be balanced out by the drop in levies from non-EU countries, so the blow might be cushioned. 

The fashion house was hit hard by the slump in the pound on the back for the EU referendum in 2016. Sterling’s sizeable fall paved the way for Next paying up to 12% more for goods. The Next share price was hit hard by the EU referendum result, but is now up over 13% from pre-referendum levels.

There is speculation a no-deal Brexit could hurt the pound once again, but no doubt the firm has learned its lesson from three years ago and will take this into account going forward. 


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