2 Reasons To Steer Clear Of NEXT plc

Royston Wild looks at why NEXT plc (LON: NXT) may not be a shrewd stock selection after all.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In recent weeks I have looked at why I believe NEXT (LSE: NXT) is poised to hit the high notes (the original article can be viewed here).

But, of course, the world of investing is never a black and white business — it take a variety of views to make a market, and the actual stock price is the only indisputable factor. With this in mind I have laid out the key factors which could, in fact, seriously damage NEXT’s investment appeal.

Discounting intensifies on the High Street

Undoubtedly, NEXT has been hugely successful in keeping sales ticking higher in recent years, staving off a backdrop of rising nextinflation and stagnating salaries prompted by the 2008/2009 banking crisis.

However, NEXT is facing the prospect of having to step up its discounting operations as competition on the High Street intensifies. As latest data from the British Retail Consortium Shop Price Index showed, shop prices dropped 1.7% during March from the corresponding month in 2013, the biggest decline since the Index began in late 2006.

And more worryingly for NEXT, non-food deflation to the tune of 3.2% was also the biggest recorded decline, with clothing prices falling for seven successive months. With all of the UK’s major fashion outlets engaged in an escalating price war, NEXT may see margins come under serious pressure as it bids to keep shoppers away from its rivals.

Continental retail sector on the slide

On top of troubling conditions at home, NEXT should also be concerned by signs that the retail environment in Europe is beginning to worsen.

The retailer’s international operations — which cover vast swathes of the continent from Germany to France, Estonia to Luxembourg — saw online sales almost double to £101m in the year concluding January 2014, while its retail and franchise stores saw revenues tick 10% higher to £85.6m.

However, latest eurozone retail purchasing managers’ index (PMI) numbers indicate that wider sector conditions remain troublesome. The latest survey for March came in at 49.2, the second consecutive monthly sub-50 reading which indicates contraction rather than subtraction and the sixth negative reading in seven months.

NEXT has said that it plans to reduce prices in only five countries next year versus 28 in 2014, but the business may be forced to take drastic action should sales pressure intensify in coming months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston does not own shares in NEXT.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »