Why Next shares are attracting heavy buying

After a terrible share price performance this summer, Next has soared on the back of this half-year update. Richard Hunter, head of markets at interactive investor, gives his insight. 

If there are two guaranteed outcomes to a Next update, they are careful financial management of the business and a guarded outlook, both of which have been delivered.

Next has also decided that this is the time to be sharing its view of the world at present, as evidenced by the sheer length of this update. This incorporates the retail landscape, Brexit implications, and detailed plans on business development. 

Within the big picture view, the pendulum continues to swing away from stores and towards online, and it is not yet clear where it will eventually settle. With this backdrop in mind, Next's best efforts are to be prepared for the ongoing shift and, in this context, the weakness in retail sales is being compensated for with strong and ongoing online growth, where sales are up 17% in the six months to July and profit has increased by 21%. 

•    Are Next shares a buy for the long term?

•    The week ahead: Next, AA

•    Chart of the week: Is the Next rally nixed?

The upgrade to full-year profit is welcome, given that the potential weakness in August did not materialise, whilst the earnings per share metric is likely to improve by 5%, even against the traditionally cautious management outlook.

Of course, the current challenges facing retailers are legion, and Next has surely mentioned most of them in this statement. The anticipation of these challenges should put Next in a better position to deal with them, providing that it can avoid some of the self-inflicted wounds of the past. 

In the meantime, the intense competition within the sector, which has accounted for the demise of some high-profile names, means that the company’s laser focus on managing the transition cannot lapse at any given time.

Source: TradingView (*)      Past performance is not a guide to future performance

In all, however, this state of the union address by Next is one which shows an in-depth appreciation of the sector, coupled with some better than expected numbers.  

The spike in the share price undoes some of the recent damage, whereby the shares had fallen 16% over the last three months, although only 0.3% over the last year, as compared to a 2% rise in the wider FTSE 100.

The market consensus of the shares has been edging higher lately, and today's numbers may well put some upward pressure on the general view again, which currently stands at a 'hold'.

*The horizontal lines on the chart represent previous technical support and resistance levels. The blue diagonal line represents the uptrend since July 2017