Clothing retailer Next (LSE: NXT) has long been a favourite of long-term investors. Those who bought the stock at its nadir in the early 1990s (the share price fell as low as 7p in December 1990) and somehow had the nerve and gumption to hang on, would have made many, many multiples of their money. Even in the past five years alone, the stock has returned nearly 250%, including reinvested dividends.
However, the company rattled investors last week as the chief executive, Simon Wolfson, warned that 2016 was shaping up to be its toughest year since 2008. The share price fell by more than 10% during the day, while rival retailers such as Marks & Spencer and Debenhams slipped as well. Next cut its sales and profit guidance “for the second time in three months”, noted Reuters, with a “worst-case scenario” of a 4.5% fall in profit and a 1% drop in sales.
Wolfson blamed a deteriorating backdrop for consumer spending, and also suggested that consumers may be spending more money on going out and holidaying, rather than buying clothes.
As Jonathan Guthrie notes in the FT’s Lombard column, Wolfson “has form as a doomster”. That said, adds Lex, it’s not just about the gloomy backdrop. There are company-specific issues too – “Next is struggling to draw customers to its credit offering” and its Next Directory catalogue and online business “is maturing and needs investment as rivals catch up”. All told, it’s no disaster – but on a price/earnings ratio of nearly 13 and a dividend yield of 2.9%, Next is hardly a screaming buy either.