Shares jump as Next eyes better quarter

By Rachel Sanderson Reuters - Thursday, May 8 09:37 am

LONDON (Reuters) - Shares in clothing retailer Next jumped by more than 5 percent on Thursday as investors looked past a gloomy first quarter trading update to its hopes for a slightly better second quarter.

Next, a bellwether of shopper consumption on the high street, blamed financial pressure on customers from rising prices for food, fuel and taxes for driving its retail like-for-like sales down 8.9 percent in the first quarter.

Next said it expected a first half fall in like-for-like sales of 7 percent, at the bottom end of the forecast range. Sales from its retail unit for the first half would fall 3.5 percent lower, it said in a statement on Thursday.

But it added internal forecasts for full-year profits were "closely in line" with market consensus of profit before tax of 475 million pounds to 505 million pounds and said it expected the second quarter would "improve significantly".

The stock was up 5.8 percent at 1,297 pence by 9:15 a.m., strongly outperforming a 0.45 percent fall in the DJ Stoxx index of European retailers and the biggest gainer in the FTSE 100 index of leading UK shares.

Seymour Pierce analyst Freddie George upgraded Next to "buy" from "hold" and said he believed the stock's underperformance in recent weeks was overdone.

"As the worst news seems to be on the table, Next looks today marginally more interesting as a "cyclical play", Bernstein Research analyst Luca Solca said.

BATTERED

European retail stocks have been battered since January on expectations the global credit crunch and rising commodities prices will eat into shopper budgets with apparel stores expected to be particularly hurt by the shrinking spending.

Stuart Rose, chief executive of clothing retailer Marks and Spencer , has forecast the high street may not seen an improvement in shopper morale until 2010. Marks and Spencer updates the market on its trading on May 20. Its shares rose 2.5 percent.

Next said financial pressure on its customers resulting from cost increases in food, fuel, mortgage repayments and taxation looked set to continue.

"However, we continue to believe that sales in the second quarter will improve significantly as a consequence of last year's unusual weather patterns and we have budgeted on this basis," Next said.

Within the last 11 days, Next's retail sales had picked up with the arrival of warmer weather and the cumulative performance from Jan 27 to May 7 showed total sales down 3.8 percent and like-for-likes down 7.8 percent.

Next did not plan any additional markdown activity having already planned for weak demand, it added.

For the first quarter period from Jan 27 to April 26, Next Retail sales were 5 percent lower than last year. Sales at its mail order unit Next Directory were down 1 percent.

Numis analyst Nick Coulter cut his rating on Next to "hold" from "add" last week on expectations the retailer was unlikely to perform in the first quarter's weak trading environment.

(Reporting by Rachel Sanderson; Editing by Louise Ireland/Andrew Callus)

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