Royal Wedlock suits Next´s shares

Thursday, 05 May 2011
British equity market slumped on Wednesday, pressured by losses for the oil and mining sectors, and dragged by a strongly hit Footsie, while retailers rose after Next PLC raised its profit forecast and now expects full year profit in the range of GBP535 million to GBP585 million, up from guidance provided in March of GBP520 million to GBP570 million.

The uplift reflects a 5.2% rise in Next brand sales excluding VAT in the 13 weeks to April 30, at least 2.5% of which the company attributed to early summer shopping as the U.K. basked in unually warm Easter weather and enjoyed an extra bank holiday to celebrate the Royal Wedding.
The better-than-expected sales and raised full year guidance pushed Next shares to the top of the FTSE 100 leaderboard, up 4.19% or 93 pence at 2315 pence at 0708 GMT in a broadly lower London market.

The U.K. retail sector has endured months of gloomy earnings, profit warnings and cautious outlook statements as shoppers struggle to balance their budgets and rein in their spending. There had been some hope the Easter and Royal wedding holidays would boost sales, and Next's results reflect this, but the uplift is not expected to last.

Next doesn't expect the pace of sales growth to continue into the second quarter, as consumers still battle inflation, public sector job cuts and tax rises. Next's own price rises will also put the brakes on some sales. Shares of Next rallied 4.4% where Marks & Spencer Group advanced 3.8%. Disappointing U.S. economic data hit stocks hard on Wednesday and pushed the dollar to an 18-month low against the euro. After a weaker-than-expected survey from the ADP private payrolls firm, investors were shocked by a report into the services sector from the Institute for Supply Management.

In the same vein, there is a concern in the markets now that Friday’s official government payrolls figures for April may disappoint — the figures often set the stock market tone for a week or two after their release. “There is now downside risk to our call for 180,000 net new jobs for April,” said Jennifer Lee, senior economist at BMO Capital Markets.That risk was dominating trading activity.

Big news however for the high-end department stores chain Macy´s, as Moody’s Investors Service raised its rating outlook from stable to positive for its shares. The change is a result of Macy’s improved credit metrics due to its reduction in debt and its underfunded pension status, as well as improved operating performance.

“We expect Macy’s operating performance to continue to improve as it fine tunes the My Macy’s program and focuses on further integrating its stores and on-line businesses,” Maggie Taylor, senior credit officer at Moody’s, said in a news release. “This will likely offset any earnings pressure from rising commodity costs and result in further strengthening in credit metrics so long as Macy’s financial policies remain balanced.” Its titles were up by 1.05% at early trading on Wednesday.

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