September 30, 2014 / 6:29 AM / 5 years ago

UK's Next warns warm weather could hit profits

LONDON (Reuters) - British retailer Next (NXT.L) warned on Tuesday it will have to lower profit forecasts if unusually warm autumn weather continues and shoppers don’t buy winter clothing, denting shares across the sector.

Shares in Next, Britain’s second biggest clothing retailer by sales, fell as much as 5.6 percent. Shares in Marks & Spencer (MKS.L), the country’s largest clothing retailer, declined by up to 4.4 percent, while department store Debenhams DEB.L were down by up to 4.7 percent.

The comments had extra resonance coming from Next which has outperformed rivals for a decade due to a strong online offer, new store openings and diversification into new product areas, such as homewares, as well as new overseas markets. In July the company raised its guidance for annual sales and profit for the second time in three months.

“Next don’t often lower guidance, so the fact that they have said they may do so due to the warmer weather is hitting the shares, which have had a strong run, and will also hit the sector if the weather remains unseasonal,” said Securequity sales trader Jawaid Afsar.

September is on course to be the driest since records began in 1910, according to Britain’s Met Office.

Next’s warning comes less than two weeks after the employee-owned John Lewis, Britain’s largest department store chain, became the first major UK retailer to say shoppers were delaying purchases of winter coats, hats and boots because of unseasonably warm and dry weather.

Swedish fashion retailer Hennes & Mauritz (HMb.ST), the world’s second biggest fashion retailer, issued a similar statement last week.

M&S said it had no plans to change its trading update schedule. It is next due to update investors on how it is faring on Nov. 5.

“Next are probably being unnecessarily cautious, ahead of investor meetings this week, but the market is unlikely to take any chances and the shares will be unnerved,” said independent retail analyst Nick Bubb.

OCTOBER’S IMPACT

Next, which trades from over 500 stores in Britain and Ireland, about 200 stores overseas, and through its Directory internet and catalogue business, said third quarter sales to date were up 6 percent - lower than its previous forecast of up 10 percent.

“Cooler weather in August resulted in several very strong weeks. However, warmer weather in the more important month of September has had the reverse effect,” it said.

Next said that at present its profit forecast for the full 2014-15 year remains within its previous guidance range of 775-815 million pounds, given on July 29 and reiterated on Sept. 11.

“Our experience suggests that some lost sales are regained when the weather turns. However, if this unusually warm weather continues for the full duration of October then we are likely to lower our full year profit guidance range,” it said.

Cantor Fitzgerald analyst Freddie George said he was maintaining his “buy” stance on Next and 2014-15 pretax profit forecast of 805 million pounds.

“The mild weather... is impacting all retailers in the UK and is only a temporary phenomenon. The underlying trends, in our view, remain positive,” he said.

Shares in Next, up 36 percent over the last year, were down 265 pence or 3.8 percent at 6,600 pence at 0905 GMT (10.05 a.m. BST), valuing the business at around 10 billion pounds.

Reporting by James Davey; additional reporting by Sudip Kar-Gupta,; editing by Keith Weir

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