Next PLC share price dives after weak guidance: buy the dip?

Next PLC (LON: NXT) share price has done relatively well in the past few months even as the cost of living of living crisis has intensified. It rose to a 52-week high of 7,086p earlier this month. On Wednesday, the stock dropped by over 5% after the company warned about its business.

Next to be hit by UK corporate tax hike

Next PLC is a leading British retailer that deals with fashion and homeware products. It is widely seen as a bellwether of the retail sector, thanks to its hundreds of stores in the country.

One of the biggest retail news this week was the decision by Next to acquire Cath Kidston out of bankruptcy. It previously acquired Joules and Made.com out of bankruptcy as it sought to grow its market share.

Another important news was the company’s annual results. The company’s revenue jumped by 8.4% to £5.14 billion. Further, the company’s profitability continued, with its after-tax profit rising by 5% to £711 million. 

This was a strong performance considering the tough state of British retail sector during the year as inflation jumped to the highest level in decades. Most retailers, including Tesco, saw their profits take a hit. Other retailers like Boohoo and Asos reported substantial losses. Most importantly, many high-street retailers closed shop.

In its statement, Next said that it will hike its prices at a slower pace than previously guided. It expects to boost its Spring/Summer prices by 7% and its Autumn/Winter by 3%. Before that, it had guided increases of 8% and 6%, respectively. The statement added:

“We are expecting performance in the first half of the year to be weaker than in the second half. This is because, in the first half last year, unusually warm summer weather coincided with the release of pent-up demand for summer events after the pandemic.”

In all, Next PLC expects that its full-year price sales will be £4.5 billion while its profit before tax is expected to drop by 8.7% to £795 million. The upcoming corporate tax increase will see its EPS drop by 12.5% to 501.9p.

Next share price forecast

Next stock chart by TradingView

The daily chart shows that the Next stock price rally has hit a barrier at the year-to-date high of 7,062p. It has moved below the 23.6% Fibonacci Retracement level. It has also crossed the 50-day and 100-day exponential moving averages (EMA). Further, the Relative Strength Index (RSI) has continued dropping and is nearing the oversold level.

Therefore, while Next is a good retail stock, there is a possibility that the shares will continue falling as sellers target the key support at 5,722p, the 50% retracement level.