Next shares jump as it beats expectations and raises profit outlook

Next beats expectations and raises outlook

Next looks set to deliver a strong finish to its financial year after full price sales rose more than expected in the last nine weeks of 2022, as demand for its clothing held up over the holiday shopping season and defied the broader downturn being driven by the cost-of-living crisis. Sales rose 4.8%, coming in far better than the 2% decline anticipated by the company.

The beat was driven by its retail stores, which performed better than anticipated after Next underestimated the negative impact from Covid-19 on its stores last year as well as the positive impact of improved stock levels this year.

The performance prompted the fashion and homeware retailer to raise its pretax profit guidance for the full year by £20 million to £860 million, which would be some 4.5% higher than the year before.

Next remains ‘cautious’ about the year ahead

That will be welcomed by investors, although Next is remaining ‘cautious’ as it approaches the new financial year that will start later this month and has said it expects full price sales to fall 1.5% and for pretax profit to decline 7.6% to £795 million.

Next has said inflation, particularly for energy, the continued push to raise prices to counter higher costs, and tighter consumer spending could all act as headwinds. It plans to counter this through cost savings and ramping-up sales and markdowns, with the company still having to cut prices on more inventory than in recent years with the hope of addressing its overstock in the new financial year.

Where next for the Next share price?

Next shares have rallied over 38% since hitting a 29-month low last October and are currently trading at their highest level in almost four months. The stock is up 6% this morning and continuing to gain ground.

The average volume at time has been rising in recent days to suggest that the uptrend could be gaining momentum, which could see it continue to rise toward the 6,460p level of resistance-turned-support we saw back in the late stages of 2020. From here, the stock can target the 6,628p ceiling that we saw between March and July 2022.

However, we have also seen the RSI spike alongside the rally and the stock is nearing overbought territory to suggest that finding higher ground could become harder going forward. The fact the share price has recaptured the 200-day moving average for the first time in a year will provide hope this could provide some support if it comes under renewed pressure. If not, then the 5,710p floor that held firm throughout March to September last year should be treated as the initial level of support.

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