Next has pleasant surprise for shareholders

An unscheduled announcement from the high street and online retail giant has triggered a rally in the share price to a one-month high.

Much as Next (LSE:NXT) underwhelmed the market with its first quarter trading update in May, it has pleasantly surprised investors with a further unscheduled release which notes that trading in the last seven weeks has been materially better than previously anticipated.

Whereas the group had guided that second quarter sales would likely decline by 5%, the revised guidance is now for an increase of 9.3%, with the material swing improving the likely year to date sales figure from a drop of 2.4% to growth of 3%. Equally importantly, these are full price sales figures, without the need for discounting which Next has been eschewing of late, which should go some way to protecting margins.

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The company attributes the outperformance to improved weather and the relative impact of annual salary increases. In turn, the additional revenues have resulted in Next raising its estimated pre-tax profit for the year by £40 million to £835 million.

By the same token, a Next update would not be complete without a note of caution, and the group added that if its current reading of the improvement in sales is correct, then the effect will diminish over time as ongoing inflation continues to bite.

Even so, the update saw the shares spike by up to 5%, building on a hike of 15% over the last six months. The performance over the last year has been more in line with the wider market, with a rise of 7% comparing with a jump of 8% for the FTSE100.

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The more recent bounce has partly followed optimism over the group’s refreshed strategy as announced at its full-year results in March, although it is unlikely that any upgrades to the general view will be forthcoming until the company reports its half-year numbers in August.

In the meantime, the market consensus of the shares as a 'strong hold' should remain in place for now, until such time as the seemingly improving momentum can be proved to have held firm.