Next (NXT) shares are bottom of the UK 100 this morning after disappointing Q1 sales forced management to cut only recently issued FY guidance for revenues and profits. Today’s share price drop of 6.6% is the worst since January’s -14.4% reaction to a profits warning and very gloomy outlook. Thereafter you have to go back to the post-referendum 2-day rout (-12% and -9.6%).

End-March investors had been told to expect Q1 sales growth towards the lower end of a +2.5% to -3.5% FY range. Reported growth of -3%, only just beating the worst case scenario, is thus understandably weighing heavily on sentiment. Especially when coupled with the negative floor for guidance is left in place but the ceiling is lowered (now just 0.5%), in turn reducing the best estimate for pre-tax profits to £740m from £780m.

Retail sales -8.1% versus Directory +3.3% also adds to concern about the state of the UK high street, compounded by an ugly updated outlook statement (“UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero”) which is dragging peers Marks & Spencer (-2.6%) and Kingfisher (-3.1%) to join Next at the tail end of the blue-chip index, although the latter has gone ex-div (7.15p of its 10.75p drop today).

Even Jan’s equivalent of a corporate lollipop in the promise of more cash returns (four special dividends of 45p/extra 4% yield) is failing to support a share price which has already lost almost 50% in less than 18-months. Those of a bullish persuasion may see today’s early management capitulation as an attractive entry opportunity if it is able to upgrade guidance again later in the year. Bears will merely point to this poor update coinciding with yesterday’s teasing but ultimately failed attempt to overcome 17-month falling highs at 4370p, merely keeping the long-term downtrend intact.

Mike van Dulken, Head of Research, 4 May