Jefferies downgrades Next to 'underperform'

Jefferies downgraded retailer Next to 'underperform' from 'hold', keeping the price target at 3,500p.

The bank noted Next's share price has rallied 13% in recent weeks and warm weather aside, it reckons the company's challenge to regain its competitive edge and overcome a shift to leisure spending is as tough as ever.

Jefferies said the dividend yield of around 8% is an attraction, but it forecasts a near 20% decline in pre-tax profit for FY17-19, below consensus, hence the downgrade.

"We believe a late Easter and 'the fifth warmest March since 1910' will have helped UK clothing sales but rising inflation, weak UK consumer confidence (-6% in March) and the shift to leisure spending are offsetting factors."

Jefferies said that results from its February consumer survey showed that Next's net promoter score had fallen to 19%, below Marks & Spencer and Debenhams for the first time, and down from 32% 18 months ago.

"As a result Next has fallen from 3rd to 11th position in our NPS league table. So with planned improvements to the clothing ranges and multi-channel offer not fully coming through until Christmas and beyond, and competitors continuing to invest and improve, we expect it will take time for Next to get back on track."

At 0920 BST, the shares were down 1.3% to 4,217p.