Tuesday morning's trading update from fashion chain has been well received by the market but was not enough to convince broker Charles Stanley to change its neutral stance on the stock.
Charles Stanley said the Christmas update from the clothing chain was in line with weak expectations and the outlook for 2009 remains challenging, with sterling's weakness likely to put pressure on margins in the second half of the year.
"Next Retail like-for-like sales are expected to be negative again in 2009/10, with H1 being particularly weak. Next Directory is expected to be more resilient, with the group budgeting for only a marginal decline in full year sales," said Charles Stanley analyst Sam Hart.
Hart highlights "significant off balance sheet gearing in the form of c£2.1bn of operating lease liabilities (mainly on stores)," but concedes that the position looks sustainable.
"Next is likely to be amongst the more resilient retailers in the current downturn and the shares look cheap, but whilst forecast risk remains on the downside and such uncertainty remains over the length and depth of the UK consumer downturn, we think the shares will trade sideways at best," Hart concludes.
Meanwhile, broker KBC Peel Hunt believes that although Next is likely to out-perform sector peers and , it is still too early to buy the shares until "the extent of the next downturn in spending becomes apparent."
KBC's retail analyst John Stevenson does concede, however, that "with strong cash generation and an attractive well covered and apparently secure dividend yield of 5%, the shares are not without attraction for those looking for early sector exposure."
