Next’s growth rate slows and De La Rue issues another profit warning

“Pressing the button for a general election has had no impact on the UK stock market, perhaps because it was widely expected to happen. The pound was unmoved on Wednesday morning and the FTSE 100 and FTSE 250 indices only changed by a matter of points,” says Russ Mould, Investment Director at AJ Bell.

“Financial and healthcare stocks were in demand while miners and retail stocks were out of favour.

“Later today we have the outcome of the Fed Reserve’s latest meeting on interest rates where a cut is widely expected."

Next

“Next has a habit of making small steps forward even when confronted with unfavourable market conditions. The business is not fast growth like Boohoo, nor is it at the cutting edge of fashion like many other popular retailers. But being slow and steady and providing functional clothing isn’t a bad thing in the volatile world of retail.

“There is a continuation of earlier trends whereby high street weakness is more than offset by online gains and income from providing credit to customers. However, third quarter performance was weaker versus the first-half with online sales and finance interest income growing at a slower rate and high street sales declining by a higher rate.

“Perhaps one of the key points in the latest trading update is Next’s ability to keep growing full price sales which is commendable in a retail environment awash with discounting.

“The cold weather in October has been an important sales catalyst for Next and other retailers as it will have spurred people to buy new coats. Weather forecasts for the chilly spell to continue into November bode well for further sales of warm clothing but Next isn’t confident that October’s sales growth rates will continue at the same level for the rest of the year. It is typically conservative in its forecasting and doesn’t like to raise expectations without strong certainty.

“It will be interesting to see how the Brexit delay and forthcoming general election affects consumer confidence. Next arguably needs people to feel good about their finances in order to spend money and any concerns about the economy, job safety and personal finances would naturally have a negative impact on retail spending.”

De La Rue

“De La Rue fails a major test for investors: if it didn’t exist as a business today, would you really set it up? Being a specialist banknote printer looks anachronistic in an increasingly cashless world.

“Add into the mix the loss of the contract to print British passports, an unpaid debt owed to it by the Venezuelan central bank, a fraud investigation into corruption in South Sudan as well as increasing pressure from activist shareholder Crystal Amber and it is little surprise the company has resorted to a change of management in a desperate attempt to revive its fortunes.

“Into this scenario walks new chief executive Clive Vacher. He is an old hand at turnarounds and appears to be following the playbook – wasting very little time from his arrival at the start of the month to reset expectations.

“Investors might be slightly concerned that no reason is given for today’s profit warning, the second in a little over six months.

“A ‘detailed review’ of the business implies some significant restructuring and even that some bits of the group might be sold off.

“It is worth noting that De La Rue has been through a similar process in the past under another corporate Mr Fixit in Leo Quinn. He led a successful turnaround of the group albeit one that wasn’t long-lasting. Vacher’s task could be significantly harder now.”

These articles are for information purposes only and are not a personal recommendation or advice.