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Next's Christmas cheer helps retailers top FTSE

Next shoots to top of FTSE 100 after raising guidance following strong trading over the Christmas period.

 
Next's Christmas cheer helps retailers top FTSE

Retail stocks have risen to the top of the FTSE 100 after a better-than expected update from Next (NXT) buoyed optimism for the sector.

Shares in the clothing retailer jumped 7.7% to £48.46 after management raised its full-year profit forecast, having beaten guidance for Christmas sales.

Next upped its profit guidance for the year by £8 million to £725 million, after sales over the Christmas period were up 1.5% on last year, thanks in part to colder weather.

Management also said it expected to generate £300 million of surplus cash which it would use for share buybacks.

The news boosted rival retail shares. Primark owner Associated British Foods (ABF) was up 2.5% at £28.48 while Marks and Spencer (MKS) rose 1.3% to 320.3p.

George Salmon, equity analyst at Hargreaves Lansdown, said Next's update was a 'belated, but very welcome, Christmas present for investors across the retail sector'.

'The decision to use the expected £300 million of surplus cash generated next year to fund share buybacks rather then special dividends implies management believe the shares represent good value at the moment,' he added.

Russ Mould, AJ Bell investment director, said the surplus cash expectations would also help underpin the dividend.

'Next may not repeat the 180p-a-share in special dividends for fiscal 2017-18 but even an unchanged regular dividend of 158p would represent a perfectly respectable yield of 3.2%,' he said.

The bounce in retail stocks helped the FTSE 100 edge two points higher to 7,650.

On the FTSE 250, another retailer led the way, with shares in N Brown (BWNG) up 6.6%, also buoyed by a positive note from analysts at Jefferies who pointed to a potential rebound in the stock.

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