Good morning!

Next (LON:NXT)

Always of interest (for wider read-across on consumer spending generally) are the trading updates for High Street bellweather, Next (LON:NXT) . Its update today is perhaps surprisingly solid. Q2 sales showed an improving trend on Q1. Although not specifically stated, you can deduce from the figures today that LFL sales are still negative.

Its comments on Brexit are particularly interesting;

With only a few weeks since the EU referendum it would be unwise to draw any firm conclusions of the effect the decision to leave the EU will have on UK consumer demand, particularly as the week after the referendum was an unusually strong week the previous year.   So far, we can see no clear evidence of any appreciable effect on consumer behaviour, apart from the first few days after the vote.

So this confirms my view that Brexit has had little to no impact on consumer behaviour. Obviously, more poorly performing companies are going to blame their poor results on Brexit, and/or the weather! Remember how Bonmarche Holdings (LON:BON) blamed the weather for its terrible performance in Q2? Funny that it hasn't affected Next, despite them having the same weather. So BON are looking rather a bit daft for those weather comments.

Next also makes some very interesting comments about the devaluation of sterling, as this is a key issue for clothing retailers. Most import the bulk of their product from the Far East, and it's usually invoiced in US dollars. Therefore the recent plunge in sterling will increase the cost of imported goods - meaning that selling prices in the UK are likely to rise in 2017.

On this issue, Next today says;

  • Currency is hedged for all of this year (y/e 31 Jan 2017), so no impact.
  • Imports expected to be 9% more expensive next year.
  • Mitigating factors mean this can be squeezed down to c.5% higher cost prices next year.

Outlook - Q3 is expected to be tough, due to very strong comparatives from last year (+6%). However, Q4 could be stronger, due to exceptionally mild weather last autumn, which depressed sales of warmer winter clothing ranges.

Profit guidance (why can't all companies do this, it's so helpful?) has been narrowed from the previous range of £748-852m, to £775-845m. Note that the main movement in the range comes from a £27m increase

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