I don’t care about its 5% dividend yield. Next (LSE: NXT) is a FTSE 100 dividend stock I’m dodging right now and I think you should, too.
Supermarket sales might be ripping higher right now as worried consumers stockpile. It’s likely that overall sales in these outlets will remain robust, too. We all need to keep eating irrespective of economic, political, and social upheaval, right?
On the whole though, the retail sector is in a terrible mess. It’s a point underlined by the BDO’s latest High Street Sales Tracker released on Friday. This showed that like-for-like sales in the UK tanked 17.1% in March as social distancing measures heated up and spending on non-essential items dropped. In-store purchases slumped 34.1%, it said, offsetting a 13.7% rise in online buys.
Out of fashion
The country’s biggest fashion retailers are suffering the brunt of the washout, too. According to the survey, like-for-like fashion sales dropped 25.9% last month, including a whopping 40.4% decline in sales from ‘bricks and mortar’ shops. Online clothing sales took a dive, too, the BDO says.
It’s no shock that the body reckons there is more pain to come as well. It comments that “consumer spending on discretionary items is an immediate casualty of the circumstances [and there are] reports suggesting a notable decline in major purchases over the coming months.”
Quarantining measures are clearly having a colossal impact on Next’s bottom line. I raised this point when I last discussed the FTSE 100 firm in late March. The company makes around 43% of its total sales in its now-shuttered physical outlets.
Things have gotten even worse since my most recent article on the business, though. The day after my piece was published, Next said that it was closing down its online operations as well. It said many of its warehousing and distribution workers wished to stay at home during the coronavirus crisis.
Balance sheet bothers
This most recent development obviously means that full-year sales will collapse beyond the 25% that it had been modelling just one week before. Regardless, the BDO data suggests that revenues would have fallen out of the retailer’s forecast bracket even if its stores and website were still operational.
The company’s guidance, then, that it could “comfortably” deal with a potential £1bn sales hit without breaking its current bond and bank facilities lies in tatters.
Retail operators have been cutting dividends left, right, and centre to conserve cash and ride out the storm. Next is yet to deliver the hammer blow to investors but it appears as if a decision to delay or suspend dividends is just a matter of time. Even when it reopens its operations it’s clear Next faces an uphill task to get shoppers clamouring for its clothing lines.
For this reason I’m not attracted to the firm’s 5% dividend yield. There’s no shortage of much better, safer FTSE 100 dividend stocks to buy today, so why take a gamble with Next?
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.