The meagre fourth-quarter sales growth delivered by Next (NXT) - seen as a bellwether for high-street retail - has prompted a major broker to cut its pre-tax profit forecasts.
Peel Hunt said it was taking 2-3 per cent off its forecasts in light of the performance, which saw the clothing retailer post a small 0.4 per cent rise in like-for-like sales growth in the fourth quarter. Within this, store sales fell by 0.5 per cent, while its online business, Next Directory, posted 2 per cent growth.
While the mild and wet weather in December was partly to blame for reduced demand for coats and pullovers, management cited other more fundamental issues which also impacted its performance.
The group said poor stock availability from October onwards hit its Directory revenue. Not only that, but management admitted the "online competitive environment is getting tougher as industry-wide service propositions catch up with the Next Directory".
Peel Hunt analysts commended Next for its honesty on these challenges, but added that the group could only be "guardedly included" in the camp of similar businesses that can thrive in the medium term. "Online is winning the arm-wrestle with bricks and mortar and fashion (and its delivery) is getting faster," ran its note. "Only the fleetest of foot can expect to see medium-term growth."
The numbers raises the prospect of a bleak set of statements from fellow retailers, including Marks and Spencer (MKS), which updates the market on Thursday 7 January.
"These results, which have kicked off the retail Christmas reporting season, will have made the market nervous about how others have fared," said The Share Centre's Graham Spooner, an investment research analyst.
Peel Hunt analysts said the lack of fresh pre-announcements suggested there are "no profit horror shows awaiting us", but the broker expects average forecasts to fall.
There is, however, some room for optimism for Next. Ketan Patel, associate fund manager at EdenTree, said the low inflation environment coupled with modest wage increases, should lead to greater disposable incomes for the UK consumer.
He added that Next's shares had returned 35 per cent annually on a total return basis compared with 6 per cent for the FTSE All-Share index in the past five years.
Mr Spooner added that control of margins by management - which does not discount in the fourth quarter until its Boxing Day sale - as well as a keen eye on costs and stock "should see full-year profit in line with guidance".
