Next shares could unravel further

The British weather has let Next Plc. down yet again, albeit indirectly.

This time, the unseasonal climate has not messed up carefully planned seasonal collections, thereby robbing the UK’s biggest clothing retailer of an excuse it used frequently over the last few years.

The right weather for the time of year more often than not in 2015 has exposed a host of underlying operational weaknesses at Next, forcing it to warn on Thursday that 2016 could be the toughest year it’s faced since 2008.

Essentially the group is warning that the 5% uplift in profit for 2015 could be a peak that may not be matched in 2016, as it anticipates a more difficult economic environment.

Investors would be wise not get too accustomed to these solid results:

• Pre-tax profit +5% to £821.3m (vs. £817m guidance)
• Total sales +3% to £4.15bn
• Full-year dividend +5.3% to 158p

Perhaps the now rather repetitive refrains of unhelpful weather, poor stock availability and increased online competition, together with the 2016 warning, may concentrate investor minds about the need for new ideas on a board where the two top incumbents have a combined tenure of 33 years.

Next’s same-store revenue is falling and inventory is taking a week longer to clear than a year ago, it said.

But these issues have not suddenly risen up to bite management out of the blue.

They’ve been building up quite perceptibly for years.

The circumstances also call into question the wisdom of Next’s plans to expand selling space by 8%.

From a technical perspective, after a renewed sell-off from all-time highs in December, Next has retreated steadily to the same lows it visited in June and October 2014.

The shares last touched such support, (around 5886p) when the group was rocked by key exec departures and, yes a ‘weather surprise’, respectively.

Exposure of what we believe are Next’s more fundamental inadequacies on Thursday could be the opportunity many doubters have sought for years to break current strong support.

If so, these bears would have an eye to 5520p, the January 2014 launching point of a respectable uptrend.

Even if current palpable misgivings subside, the shares will still face a challenge in the relatively near term: triangulation from a steep downward and current support.

Well before that, the peak of Thursday’s petulant drop (6300p) and likely support turned resistance between 6425p and 6481p (latter also a 61.8% interval) will certainly be cautionary for careful buyers.

It’s all in keeping with a company which has quite a lot to prove in the first half of its financial year, and beyond.

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