Sector movers: Retailers hard hit by woes at Next

Fashion retailers' shares got whacked after Next posted lower-than-expected sales for the period over Christmas and warned that further weakness may lie ahead.

Group sales from the start of November until Christmas Eve shrank 0.4%, as a 3.5% decline in shop sales was largely offset by directory sales picking up 5.1%.

This was well short of the market forecast of roughly 2% against poor numbers from the same period last year and means for the year to 24 December total group sales have fallen 1.1%

"It’s tempting to think the worst may be over for Next as its valuation drops to a more attractive level but this cheap stock could get cheaper. The shift in consumption patterns and difficult weather that led to falling sales in 2016 didn’t even factor in the expected impact of rising import costs from a weaker British pound. We remain bearish on Next for the first half of 2017 with some recovery possible in H2 as retailers pass on higher costs to customers with higher prices," said Jasper Lawler, senior market analyst at London Capital Group.

The news also weighed on the likes of Marks&Spencer, Debenhams and N.Brown Group.

B&M European Value Retail on the other hand was able to avoid the wave of selling that washed over the sector, after it said it was confident of hitting its full-year targets as good sales over Christmas helped sales accelerate in the third quarter.

Primark-owner AB Foods was a relative outperformer, with analysts at RBC Capital Markets telling clients to rotate away from Next and into ABF.

ABF shares' valuation at 25 times calendar-2017 earnings was seen as "much more attractive" than at the start of 2016, with the implied valuation for Primark de-rating sharply last year, "which we think gives investors an opportunity to buy into a relatively scarce, international roll-out story", RBC said.

"We view Primark as a best-in-class discounter with a buying and pricing advantage, high sales densities and an attractive in-store environment and level of fashionability given its extremely low price points."

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