Next shares rise as Numis reiterates 'add' rating

Numis reiterated an ‘add’ rating and target price of 5,750p for Next after the retailer reported its first quarter trading update.

Next reported total sales in the three months to 2 May fell 0.2% from a year earlier, while full price sales were 0.9% lower, reflecting colder weather in March and April which hit demand for clothing.

The company also warned that sales and profits could be lower than previously guided due to a potential slowdown in consumer spending.

It now expects full-price sales for 2016 to range between a 3.5% fall and a 3.5% rise, a wider range than its previous forecast range of between a 1% fall and a 4% rise.

"We believe it is unlikely (but possible) that sales will deteriorate further, and we have seen a significant improvement over the last few days as temperatures have risen," the company said.

"However, the poor performance of the last six weeks may be indicative of weaker underlying demand for clothing and a potentially wider slowdown in consumer spending."

The firm also widened and lowered the range of its full-year profit estimates to between £748m and £852m, compared with the previous forecast issued in March of between £784m and £858m.

However, Numis said the shares look “good value” following a 35% fall since December 2015.

The shares trade on a 17% 2016 calendar year price to earnings ratio discount to the sector and nearly 30% below the £69.62 ceiling for the share buyback, with scope to extend it if there is significant demand for its upcoming bond issue.

“It is difficult to discern between the effect of unseasonal weather and the weakening general consumer backdrop over short periods,” according to Numis analysts Matthew Taylor and Andrew Wade.

“However, Next has tuned its own business and profit guidance to a tougher environment, while the same may not be said for many of its peers. In this context we view the 17% PE discount to the sector as good value, even if only on a relative basis.”

Shares rose 4.06% to 5,180p at 1116 BST.