Next PLC

The negative outlook reflects the possibility that we could lower the rating on Next over the next 12 months if, against the backdrop of difficult trading conditions, distributions to shareholders persistently exceed the reported FOCF. We think the apparel retail market in the U.K. will remain difficult and that pressure will remain on Next's operating performance, particularly in light of the rising risk of a 'no-deal' Brexit. This could further weaken the efficiency of the company's operations, its competitive standing, or its credit metrics. Our base case estimates that Next's leverage will be about 1.5x at the end of FY2019 and in FY2020, while adjusted debt will stay at about £1.4 billion, supported by adjusted EBITDA of about £925 million-£935

...Structural decline in store sales and lower margin e-commerce and third-party brand sales put pressure on long-term earnings prospects. As is the case with other discretionary goods retailers--in particular in the highly competitive and fashion-sensitive apparel and footwear market in the U.K.--Next PLC will likely continue battling a decline in its in-store earnings in the near term. We forecast that in the next two to three years, the like-for-like (LFL) decline in store sales will be 8%-10%, in line with the 8.5% decline as per management's guidance for the financial year ending Jan. 31, 2019 (FY2019). The 10%-15% growth forecast in the online segment--which accounted for about 40% of total retail sales in FY2018--will help Next to offset these dynamics somewhat and post largely flat retail sales annually. Rising interest income on finance receivables will support overall sales increases of 0.5%-1.0% per year, compared with a 1.3% decline in FY2018. That said, the rising share of the...

Full Report