Retailers Boosted By Next As Market Awaits BoE

LONDON (Alliance News) - Stocks in London were mixed Thursday midday, waiting for direction from the Bank of England's interest rate decision at noon, as Next shares soared on its raised full-year guidance and news of a share buyback.

The homeware and clothes retailer said the first half of its financial year was "difficult" but its performance was "encouraging on a number of fronts", as it reported a fall in profit but upgraded its sales and profit guidance for its full year.

Next was by far the best performer in the FTSE 100, shares hitting their highest point in the year to date. The homeware and clothes retailer was up 10% at 4,847.00 pence at midday, having hit a high of 4,990p earlier in the session.

The company registered a 9.5% fall in pretax profit in the 26 weeks ended July 29 to GBP309.4 million from GBP342.1 million a year earlier, as revenue slipped to GBP1.89 billion from GBP1.94 billion.

Despite the overall fall in profit and revenue, Next said the last three months have provided some encouragement that its ranges are improving, although it did note that "weather has been in our favour and the comparative numbers last year were very poor".

In light of the recent improved performance, Next marginally upgraded its full-year full price sales expectations to be between a 2.0% fall and 1.5% growth.

In August, Next provided full-year full price sales guidance in a range of between a fall of 3.0% and growth of 0.5%.

The retailer also upped its full-year expectation for pretax profit to a range of between GBP687 million to GBP747 million on Thursday, from a range of GBP680 million to GBP740 million guided in May.

"Shareholders may even be wondering whether today's upgraded guidance figures are conservative, destined for a beat to ensure a 2016-17 run of downgrades is water under the bridge," said Michael van Dulken, head of research at Accendo Markets.

Next maintained its interim dividend at 53p per share, in line with last year, and said it expects to return additional cash to shareholders through share buybacks in the second half.

The retailer expects to generate GBP53 million of surplus cash over and above the GBP257 million which it intends to distribute via special dividends.

Accendo's van Dulken noted that shares in clothing, homeware and food retailer Marks & Spencer benefited from Next's positive statement, up 3.6% and the second best performer in the FTSE 100.

The FTSE 350 general retailers sector was the second best performing sector Thursday midday, up 2.9%.

The FTSE 100 index of large-caps was slightly higher, up 2.85 points at 7,382.55 Thursday midday. The mid-cap FTSE 250 index was up 0.3% at 19,650.40, and the AIM All-Share index was down 0.1% at 1,003.56.

The BATS UK 100 index was down 0.1% 12,542.61. The BATS 250 was up 0.2% at 17,869.34, while the BATS Small Companies down 0.9% at 12,179.82.

In Europe, the CAC 40 index in Paris and the DAX 30 in Frankfurt were flat and down 0.2%, respectively.

"It comes as no surprise that we are seeing such uncertainty and lack of direction for UK stocks in a week which has been dominated by UK data points. With rampant inflation coupled with stagnant wage growth, the BoE has its hands full today as it seeks to ease the diminishing real income growth before living standards and consumption begins to suffer," said IG analyst Joshua Mahony.

"With real incomes falling, the BoE must decide whether it is preferable to raise rates in an effort to strengthen the pound (and reduce inflation), or whether to remain accommodative to help push up wages," Mahony said.

Consumer prices climbed 2.9% year-on-year in August, faster than the 2.6% rise in July and above forecasts of 2.8%, while on Wednesday wage growth was reported to have climbed by less than expected in the three months to July.

Average earnings including bonus climbed 2.1% in the three months to July, slower than the expected rate of 2.3% and flat on the month before.

The BoE's Monetary Policy Committee will return to nine members following the appointment of Deputy Governor David Ramsden, who joined the rate-setting body on September 4.

It is widely anticipated that there will be a 7-2 vote for unchanged rates, at the historic low of 0.25%, following a 6-2 vote in August.

"If two of the nine members vote for a hike, the markets wouldn't be shocked, but some traders suspect Andy Haldane might join Michael Saunders and Ian McCafferty and vote for a hike. Should Mr Haldane join the hawks, sterling could be propelled higher," said David Madden, market analyst at CMC Markets.

Haldane in June hinted at potentially supporting some degree of policy tightening before the end of the year, saying he was ready to vote for an increase in interest rates "relatively soon", though this did not result in a vote in favour of raising rates in August.

The pound was slightly lower ahead of the MPC's minutes, quoted at USD1.3198 at midday compared to USD1.3208 at the London close on Wednesday.

In London, private hospital operator Spire Healthcare was the worst mid-cap performer, down 17%, after warning it has seen revenue "significantly lower" over the past few months, with the trend continuing into September, leading it to lower its guidance for 2017.

The reduced outlook came as the company's interim profit was dented by significant one-off costs related to the Ian Paterson litigation. Paterson, a former breast surgeon, was jailed in May for 15 years for carrying out unnecessary cancer operations.

Spire said, whilst its first half performance was in line with its expectations, revenue has been "significantly lower than anticipated" in July and August, and this appears to be continuing into early September.

Spire reported a pretax profit of GBP12.1 million for the half year to the end of June, down from GBP46.0 million the prior year, hit by one-off costs of GBP32.1 million in the half, offsetting a rise in revenue to GBP481.0 million from GBP469.5 million.

GBP192.0 million has been wiped off its total market value in wake of the warning.

Wm Morrison was the worst large-cap performer, down 5.1%. The FTSE 100-listed supermarket chain said pretax profit in the 26 weeks ended July 30 grew to GBP200 million from GBP143 million the year before, as revenue rose to GBP8.42 billion from GBP8.0 billion.

The Share Centre said the share price decline was most likely due to an element of profit taking after an "impressive" share price recovery over the last 18 months. Morrisons shares are up 2.0% in the year to date.

Morrisons will pay an interim dividend of 1.66 pence for the period, up from 1.58p the year before.

Also in the red, Provident Financial was down 3.1% after RBC cut the troubled subprime lender to Underperform from Sector Perform.

Shares in the company will trade in the FTSE 250 from Monday following the most recent quarterly FTSE Russell index review.

Stocks in New York were called for a flat to lower open on Thursday, with the Dow Jones Industrial Average seen flat, and the S&P 500 index and Nasdaq Composite both pointed 0.1% lower.

In the afternoon, US jobless claims and consumer price figures are due at 1330 BST.