Retail shares tumble as Next spooks the City

High Street bellwether Next spooked the City today by casting a cloud over Christmas trading and triggering a wholesale flight from retail stocks.

Chief executive Lord Wolfson (pictured) warned that “extreme volatility” made it hard to forecast sales ahead of its crucial Christmas period and shares promptly tumbled 6% to 4621p. Shares in fellow clothing retailers followed suit, with Marks & Spencer, Primark owner ABF and Debenhams all falling.

Lord Wolfson was taken aback by the share price reaction as he revealed a return to sales growth in the third quarter.

“The truth is, it’s very difficult to explain. Our outlook for the full year has not changed at all,” he told the Standard.

The retailer reported a 1.3% year-on-year rise in full-price sales in the three months to October 29, bringing its sales decline down to just 0.3% for the year to date.

“In the same way that sales have become more volatile, we’ve got to get used to short stock prices becoming more volatile as well,” he added. “I don’t think it’s terribly productive for chief executives to second guess their share price.”

The retailer reported that sales at its stores shrank by 7.7% in its third quarter, excluding discounts, but growth in its directory business — which includes sales online and via its catalogue — picked up, growing by 13.2%.

Retail analyst Nick Bubb said the drop in high street sales was “sickening”.

The retailer said that cooler temperatures boosted sales of warm clothing in August and September, but warned that sales performance “is highly dependent on the seasonality of the weather”.

“If such a distinguished guru as Simon Wolfson finds it impossible to read the underlying sales trends, because of the volatility of the weather, then what are we mere mortals to do?” Bubb added.

“Next better hope that British shoppers are a little less fickle than the weather, because sales performance is so volatile the firm has no idea what to expect over the vital Christmas trading period,” said ETX’s Neil Wilson.

Today’s figures cast a shadow over a recovery at Next. The retailer revealed its first profit fall in eight years last year but shares had been on the rise in recent months. Next today narrowed profit guidance for the year, to £692 million to £742 million.

Of tomorrow’s mooted 0.25% rise in interest rates, Wolfson said: “If it’s part of a series of rises where it gets to 1-2% it will have an effect; I don’t think one rate rise will make a difference.”