Next shares plunge on Christmas scare for UK shops

Shares in fashion retailer Next plummeted yesterday as it cut its profit forecast after a poor Christmas and warned of a further decline.

The warning sent shockwaves through the UK’s clothing retailers as the most successful performer of the last decade faltered.

The company, which trades from about 540 shops in Britain and Ireland, said it was disappointed with its Christmas sales and highlighted “exceptional” levels of uncertainty in the sector, adding it was preparing for tougher times.

Next, which repeatedly said shoppers are spending less on clothes, warned its fiscal 2018 pretax profit could come in a full £100m (€117.6m) below market forecasts, wiping at one stage as much as 15% off a share price that had already slumped in 2016.

“A trading update from Next was always going to be interesting, but few thought it would be this interesting. Unsurprisingly, this has resulted in heavy selling across the rest of the clothing sector, with nuances in branding, demographics and pricing cast aside,” said Chris Beauchamp, chief market analyst at online trader IG.

Next was the first major British retailer to report on Christmas trading and its statement stoked concerns about lower customer numbers as shoppers increasingly shift to buying online.

Shares in Next’s retail rivals also suffered. Marks & Spencer, Dublin-based Primark and Penneys owner AB Foods and Debenhams fell by 4.2%, 3.6% and 5.5% at one stage.

Next chief executive Simon Wolfson believes UK shoppers are spending less on clothes and instead using spare cash on holidays, eating out and events. He is also anticipating pressure on spending as inflation rises.

The company, which also has franchised stores overseas and the Directory online and catalogue business, forecast full price sales could fall by up to 4.5% in 2017 to 2018.

In the run-up to Christmas, full price sales at stores fell 3.5%, while Next Directory sales were up by 5.1%, raising questions about the merits of opening more stores.

Meanwhile, John Lewis, the UK’s biggest department chain, said sales in the week before Christmas soared 36%.