Analysis: What do Next's results tell us about the fashion sector?

Profits took a dip in its first half to July 31, and the bad run has continued in its third quarter when Next’s full price sales fell 3.5%.

Retail Economics chief executive Richard Lim describes Next’s predicament as “miserable”. “Conditions on the high street remain desperate,” he says.

Looking into the numbers on a deeper level however, it’s not all doom and gloom.

August sales were a wash-out and fell 7%.

Despite the soaring temperatures that month, consumers weren’t interested in spending money on summer clothing for a season that had nearly reached its end and ditched shopping in favour of the nearest beer garden.

September again proved dismal, with sales down 5.1%.

Not only was the weather very mild at the beginning of the autumn season, Next was up against tough comparatives.

But things picked up in October, with sales creeping up 1.4% as the mercury crept down.

This breakdown not only gives a more accurate picture of performance at Next, but the state of the fashion market as a whole.

Consumer confidence

Next has traditionally been seen as an industry bellwether, solidly mid-market but managing to outperform its competitors. This is now not such an easy task for the retailer, or fellow bellwether John Lewis for that matter.

Verdict analyst Nivindya Sharma says Next’s woes are indicative of a fall in consumer confidence.

“Most blame must be laid at the feet of faltering consumer confidence among midmarket shoppers”

Nivindya Sharma, Verdict

She says: “The retailer’s online proposition and fulfilment options are robust, so most blame must be laid at the feet of faltering consumer confidence among midmarket shoppers, and a seminal shift away from spending on clothing and footwear among this demographic – something which Next has been warning of since last year.”

Many analysts called attention to this this morning, issuing ‘sell’ recommendations.

Next’s house broker, Peel Hunt analyst Jonathan Pritchard, said: “A rather blanket approach seems to have been taken by investors: their mantra is ‘if it has shops and it sources overseas then sell it’.”

“This approach may be flawed anyway: we don’t think inflation and currency will send the consumer and forecasts into a tailspin. Even if we were bearish on the macro, we think the sell-off has been too indiscriminate.”

Tailspins aside, it is difficult to imagine that consumer confidence will improve next year as inflation takes hold and Article 50 looms.

The weather

As independent analyst Nick Bubb said this morning: “October went out like a lamb, but November has come in like a lion, with a touch of the first frost of the season, which is good news for struggling fashion retailers.”

Indeed, the weather – fashion retailers’ favourite topic – has provided them with a much-needed burst of luck over the last month.

“The Christmas period as always will prove pivotal and a strong performance throughout the festive season could well make up for a lacklustre summer”

David Cheetham, XTB.com

If temperatures continue to fall in the run-up to Christmas it will stand retailers in good stead, especially given last winter’s warm weather and the consequent need among shoppers to stock up on winter clothing.

As XTB.com’s David Cheetham says: “The Christmas period as always will prove pivotal and a strong performance throughout the festive season could well make up for a lacklustre summer.”

That may well be true, but with consumer confidence still volatile and shoppers diverting spend from clothes to experiences, Christmas will be a telling time for Next and might bring some bold resolutions from Lord Wolfson in the new year.