Good morning!
My attention is mainly on retailers at this time of year, given that it's my specialist sector - having been the FD of a ladieswear chain between 1993-2002, which we grew to about 150 shops by the time I left.
So I look at the trading updates at this time of year from large cap retailers, to provide the context with which to judge small cap retailers' trading updates.
Next (LON:NXT)
Trading update - compared with the often imprecise reporting from small caps, it's a real treat for me to look at this update from the UK's stalwart mid-market clothing retailer. The company gives clear guidance on profit throughout the year, adjusting, and narrowing the range as the year progresses. It's just superb, and is typical of the way the company is run overall.
We already know that the UK saw probably the mildest winter weather for several decades, in Nov & Dec. This does genuinely impact clothing retailers, since winter coats, and other products designed for cold weather, just don't sell very well. They then have to be cleared at deep discounts, impacting on margins, as well as reduced sales.
On the other hand, consumers do have more disposable income this year, so it's not all doom & gloom.
Personally I think the slowdown in sales shown in the last two months in the table below looks perfectly reasonable, given how extreme the weather was;
Clearly the market was expecting Next to have somehow worked miracles, as it has marked down the shares by nearly 5% today to 6835p. The shares don't appeal to me, as the business is looking increasingly ex-growth now, so perhaps needs to come down to a slightly lower PER? I'd be tempted to pick up a few at the 6000 level, but not higher than that.
There's a super graph in the Next announcement today, which clearly shows the correlation between mild weather, and reduced winter clothing sales, as you would expect;
Impressively, Next owns up to some mistakes too, unlike many others, who are likely to use the weather as an all-encompassing excuse for weaker performance;
Whilst warm weather may have been the main reason for a difficult fourth quarter, we would not want to allow difficult trading conditions to mask any mistakes and challenges faced by the business. Specifically, we…
