Broker snap: Tough year, but growth expected at Next

2nd Mar 2011 10:57

Nomura expects a tough year at fashion and homeware retailer Next, but says that share buybacks plus home space and directory growth keeps the outlook upbeat.The Japanese broker expects a 3% decline in like-for-like (LfL) sales when Next reports its full year results on the 24th of March, and predicts that the company's price hikes will not fully recover cost inflation, causing margins to slide by 1 percentage point.However, analyst Fraser Ramzan believes that the group can execute cash-accretive share buybacks, which could leave earnings per share ahead by 5%.Also, Ramzan says that growth in Directory - the Next catalogue business which now accounts for 40% of profits - "will continue in 2011 (+5%) given improved access and some cannibalisation of retail stores." The broker sees opportunities for profitable new home store space offsetting some of the LfL weakness in legacy retail stores.Nomura stays a 'buyer', but cuts the target price to 2,600p, from 2,650p.