Investment: Next suffers among the fashion victims

DAVID JONES, the chief executive of Next, knew there was something wrong with his spring and summer ranges earlier in the year when his wife came back from a shopping trip and said she had found nothing to her liking in Next's stores.

Only weeks later the group issued a dire profits warning caused by buying too much high-fashion stock in women's clothing and not enough of the classics.

If Mrs Jones is the bellwether of Next's fortunes, things could be looking up. She is again finding garments she likes again in Next outlets, and the sales figures are on an improving trend.

Like-for-like sales that were 9 per cent down at the half year have turned into a 1.5 per cent rise. Analysts say the balance of the stores' product ranges is looking better.

Why, then, did Next shares fall 37.5p yesterday to a near three-year low of 407p? True, the market was down overall. But Next is also a company which has issued a profits warning and is in a sector which nobody loves.

So it may take another set of trading figures before the market really starts to believe that Next has put its mistakes behind it, even though the management seems to be doing all the right things.

The company has appointed a new womenswear director whose new ranges should start coming through from next month. New ordering and checking procedures have been introduced and improved warehousing is coming on stream.

Mr Jones is cautious on like-for-like sales in such a low-inflation environment. Profit growth will come instead from new space (80,000 square feet in the second half of the year) and higher sales per square foot.

On full-year forecasts the shares trade on a forward rating of 13. That is cheap for Next. But, given that the horror of the profits warning will take a while yet to fade away, there is no rush to buy.