Shares in retailer Next are crashing on Wednesday morning after the company announced falling pre-Christmas sales, and warned that profits could be as much as 14% lower next financial year, two major signals of trouble ahead for the British high street.
"NEXT Brand full price sales in the 54 days from Tuesday 1 November to Saturday 24 December were down -0.4%," the company said in a statement released to the markets on Wednesday.
"The fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slow-down in spending on clothing and footwear to continue into next year," it continued.
As a result of the announcement, shares in Next fell off a cliff as markets open at 8.00 a.m. GMT (3.00 a.m. ET) falling almost 14% instantly. Here's the chart:
Investing.com
Next is generally seen by retail analysts as something of a bellwether for the performance of the British high street at large. The basic argument goes that when it is doing well, so is the rest of the high street, and vice versa. That's why Wednesday's release will be a big worry to many retail brands.
In its trading update Next also indirectly warned on the potential consequences the
"In the year ahead we face a number of inflationary pressures in our cost base. The National Living Wage, the national business rates revaluation, Apprenticeship Levy and energy taxes will add around £13m to our cost base. General inflation in wages and other non-product costs look set to increase by an additional £6m. In addition we intend to add around £10m to our cost base in order to improve our website systems and online marketing."
The company went on to make a thinly veiled criticism of the government's current approach to Brexit, saying (emphasis ours):
"In the light of the exceptional levels of uncertainty in the clothing sector and with little visibility of the approach the UK government will be taking to Brexit, we have reviewed our approach to the distribution of surplus cash. We believe that in these circumstances it makes sense to give some additional certainty to shareholders over cash distributions."
Next's CEO Lord Wolfson was a prominent Brexit campaigner, but since the vote has taken an anti-isolationist approach to leaving the EU, saying in October:
"Britain voted for independence, it didn't vote for isolation and so we have a choice: are we going to choose to build an open, global-facing economy, or one that's closed and isolated? If we choose the latter, then our economy is finished. If we choose the former, we stand a chance of flourishing greatly."
The fall in Next's stock price is one of the single biggest downward moves in Next's share price in recent years. In March 2016, the company's stock had one of its worst days in 18 years after the company cut forecasts for 2016, and the CEO warned that 2016 would be its toughest year of trading since the financial crisis.
Wednesday also marks a second consecutive day of bad news for Next after Deutsche Bank cut its recommendation from 'buy' to 'hold' for the company, sending shares around 4.3% lower on the day.