Next trading update set to make grim reading

May 6 2008 by Peter McCusker, The Journal

A TRADING update from Next and half-year results from easyJet should give an indication of consumer confidence this week. Fashion chain Next’s first-quarter trading update on Thursday is set to make grim reading amid the toughest retail conditions in years.

At annual results in March, the group predicted like-for-like sales declines of between 4% and 7% across its high street stores in the first half of the year.

Next fears its main customers – aged between 25 and 45 – are likely to be hit heaviest by higher costs and debt burdens as the credit squeeze makes itself felt on the high street.

The poor weather seen so far in March and April also makes for a tough comparison with last year’s early heatwave, which drew out the shoppers.

JP Morgan analyst Richard Chamberlain said the retailer was up against a “perfect storm”, predicting first-half sales at the bottom end of the guided range.

He said: “Last year Next benefited from unseasonably warm weather in March and over Easter, whereas this year the weather has been colder and Easter much earlier.

“The colder weather may have boosted some of Next’s home ranges, but will have impacted sales of spring/summer clothing.”

But Next was struggling with high street sales declines before the credit crunch hit home and spent last year revitalising its stores and ranges and moving up-market in an attempt to “put the magic back” into the brand.

Despite the company’s sound financial position, Mr Chamberlain added: “We believe that the company needs to convince the market that it has the potential to generate same-store sales growth in a more benign consumer environment.”

The potential impact of soaring fuel costs will dominate budget airline easyJet’s interim results tomorrow.

The Luton-based carrier has already braced investors for lower profits in the second half of the year by warning of a potential £45m hike in fuel costs in March. With oil prices remaining well above US$100 a barrel since that update – and surging to records near US$120 – analysts are fearful of what lies in store for the group. All eyes will be on the firm’s guidance on outlook and fuel costs next week.

Lloyds TSB is reportedly planning to buck the recent trend of calling on shareholders for a capital boost when the bank delivers a trading update today.

It is thought the group will not follow the lead of Royal Bank of Scotland and Halifax Bank of Scotland with rights issues, with speculation suggesting that Lloyds will instead stress it has a strong enough capital base and the benefit of good access to funds. Newcastle Software group Sage has already stated that half-year results will be in line with market expectations, so the main interest in Thursday’s announcement will be on geographic performance and any update on current trading.

Sage, which supplies business management software and services to around 5.5m customers worldwide, is likely to reveal a good performance across the UK and mainland Europe and signs of improvement in its troubled US business.