Despite being down 24% over the past year, the Next (LSE:NXT) share price is up 7.45% today. This large gain comes on the back of a strong Christmas trading period. This surprised me, as it clearly did many others given the amount of buying that has been going on today. So could this be a defensive stock to buy to help me navigate this year?
Details from the report
First let’s understand the key points from the trading update. The guidance for the nine weeks to the end of the calendar year had been for a 2% fall in full-price sales versus last year. In fact, they turned out to be 4.8% higher than 2021.
Most of these gains were from in-store purchases, versus online shoppers. This is another positive and suggests physical locations are still the place to be for some retailers.
It means that full-year profit guidance for Next has been increased to £860m. The £20m uplift is thanks to the strong finish to the year.
Even with a cautious outlook in the update that 2023 could be a challenging year, Next investors took the overall report in a very positive light.
Why I’m not convinced
I don’t like to be a pessimist, but I do think that the excitement today from the update might be a little overdone.
The strong performance is admirable, but I don’t see this carrying through into 2023. The economic cocktail of rising inflation, higher interest rates and inferior wage growth all mean the average person on the street is going to feel the pinch.
Granted, this pinch would have been felt in H2 2022 as well. Maybe the Next sales rise could have been due to customers putting purchases on credit cards, or burning through savings in order to not disappoint with Christmas presents?
Even though I can’t be say for certain, the news today simply doesn’t fit in with the rest of the narrative coming out from large companies, I feel.
Is this a defensive buy?
Even as a defensive choice, I don’t think Next would be my favourite buy for a 2023 recession. I don’t think clothing and home retail is an area that will do that well during a tough year.
Rather, I’d prefer to look at utility stocks or insurance providers to offer me a safer place for my cash right now.
I could be wrong in my negative view on Next. The company is clearly bucking the broader market trend and could continue to be an outlier. In this case, investors will likely flock to buy the stock, pushing it even higher in coming months.
The recent deal in December to take majority ownership of Joules could also help to provide a positive boost to results going forward.
Yet Next won’t be the first buy of the year for me, despite the good news out today.
