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Next sales growth slows in tough clothing market

Next sales growth slows in tough clothing market
FILE PHOTO: A Next logo is seen outside a store in central London, Britain January 3, 2017. REUTERS/Stefan Wermuth/File Photo   -   Copyright  Stefan Wermuth(Reuters)
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LONDON (Reuters) – British clothing retailer Next <NXT.L> reported a slowdown in sales growth in its latest quarter, which was characterised by unseasonably warm weather, sending its shares and those of its rivals lower.

Shares in Next, which trades from more than 500 stores in Britain and Ireland, about 200 stores in 40 countries overseas and its “Directory” online and catalogue business, fell as much as 5.5 percent on Wednesday.

Rival Marks & Spencer <MKS.L>, which is scheduled to issue a trading statement on Nov. 7, fell as much as 2.7 percent.

(Next shares vs FTSE, ASOS and M&S,

Recent industry updates have indicated a poor start to Britain’s autumn and winter fashion season, given a warm September and October which has held back sales of jumpers, coats and boots, and a tough economic backdrop, with consumers’ budgets under pressure.

Next which raised its sales and profit targets last month, said full-price sales, including interest income, rose 2.0 percent in the 13 weeks to Oct. 27, its fiscal third quarter, having risen 2.8 percent in the previous quarter.

Though Next said that outcome was in line with its expectations, investors baulked at an 8 percent fall in sales at stores – a deterioration from a second-quarter decline of 5.9 percent. Third-quarter online sales rose 12.7 percent.

“Another clear example of clicks hammering bricks. Like much of the sector, Next is doing the splits as digital and physical sales head in opposite directions,” said Hargreaves Lansdown analyst Laith Khalaf.

Superdry <SDRY.L> warned on profit earlier this month, highlighting weak sales of heavier weight garments, while department store chain John Lewis [JLPLC.UL] has reported lacklustre trading for its second half so far.

Online fashion has been the exception with both ASOS <ASOS.L> and Boohoo <BOOH.L> recently reporting strong sales growth.

An industry survey on Tuesday showed overall retail sales growth had slowed more than expected this month.

For the full 2018-19 year Next forecast full-price sales growth of 3 percent and pretax profit of 727 million pounds ($924.2 million) versus 726.1 million pounds in 2017-18, sticking with the forecast issued in September.

Shares in Next, which prior to Wednesday’s update had increased 18.4 percent so far this year, were down 200 pence at 5,110 pence at 0747 GMT, valuing the business at 7.19 billion pounds.

“Next is a bellwether for the sector and we view this (update) as a positive read for the likes of online retailers such as ASOS. However, given the weaker retail trends, a negative read for M&S and other seasonal stocks,” said RBC Europe analyst Shelly Xie, who has an “outperform” rating on Next.

(Reporting by James Davey; editing by Kate Holton and Louise Heavens)

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