Thank U, Next

UK retailer next helped British retail stocks

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What's going on?

Major British-headquartered fashion retailer Next was quick off the mark in updating investors on Thursday about its performance over the holidays. Some not-so-bad-after-all news saw its shares rise 4%.

What does this mean?

Christmas: the most important time of the year for family shopping. Luckily for Next, its total sales of full-price items increased by 1.5% compared to the same time last year, as the company had predicted. But there was a big difference between in-store and online. Physical sales fell 9% in the last two months of 2018, although that was more than offset by 15% growth in ecommerce, which now makes up about half of Next’s business.

Despite solid revenue, Next slightly cut its full-year profit prediction for 2018, thanks to lower margins on beauty sales and higher costs for shipping online orders. It reckons these trends will hurt profits in 2019, too.

Why should I care?

For markets: Fashion disaster averted in the UK (maybe).

Next generates about $5.1 billion of sales annually, and it’s often seen as a clue to the wider strength of UK consumer spending. Investors gobbled up the company’s shares after Thursday’s news, but also those of other big retailers like Marks & Spencer and Associated British Foods (which owns the US-encroaching Primark). After ASOS’s nightmare before Christmas and HMV’s collapse last week (again), investors had expected midwinter to be bleak all round. But some still aren’t convinced Next’s results are good news for everyone: few of its competitors have big enough online businesses to offset sharply declining in-store sales.

The bigger picture: Luxury stocks’ luster tarnished.

Following Apple’s announcement that its sales were suffering from weaker Chinese demand, investors also sold off shares of luxury retailers. Chinese consumers make up more than a third of all luxury sales – and contribute most of the industry’s growth. A slowdown in Chinese spending would likely affect other high-end purchases – leading investors to shy away from beauty company Estée Lauder and apparel brands Ralph Lauren and Canada Goose.

Originally posted as part of the Finimize daily email.

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