Next shares surged as much as 12% this morning to test May highs as investors breathed a sigh of relief. Here are five potential reasons why;

1. Sales growth is an endangered species on the high street amid fierce online competition. News of Q2 sales +0.7%, boosted by directory (includes key online segment) and good weather, has thus got traders all excited. Especially as it has given management enough confidence to narrow its FY sales guidance to ‘-3% to +0.5%’ (prev. -3.5% to +0.5%). Given the shares’ rocky ride this year (and last), raising the lower bound is as good as an upgrade after several unwelcome downgrades.
   
2. Increasing the guidance mid-point for FY surplus cash generation means potential for greater dividend income (existing 4% yield), making the shares even more attractive to income seekers as well as those looking for capital gains.
3. The shares were already on the rise, +12% from last month’s revisit of Brexit lows helped by strong UK Retail Sales. With 5.14% shares disclosed as major short positions, some of the more recent (from 2017) may have been spooked by this morning’s revisit of May highs, electing to reduce/close their positions for fear of a share price breakout gaining traction to worsen their losses.
4. Those of a technical persuasion will have noticed the shares back above their 200-day moving average, a level not even flirted with since December 2015 when the shares’ kicked off their 54% sell-off to Brexit vote lows. Should this level now serve as support, it could provide the platform for a more significant recovery.
5. Whilst sunny skies helped in June/July, one can look at the Q3 UK weather forecast either way. More good weather could see the company sell even more summer wear. A poor August (wet bank holiday looming?), however, could just as easily see demand for more Autumnal items begin earlier than usual.

Mike van Dulken, Head of Research, 3 Aug 2017