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StockBeat: Next Joins Zara, H&M in Cracking the Digital Age

By Geoffrey Smith

Investing.com -- Has the fashion sector cracked the digital age?

You might be forgiven for thinking so. Next , often seen as a rough proxy for the sector in the U.K., certainly looks in rude health after a quarterly update that surpassed its own expectations by a long way.

Full-price sales rose by 4% in the second quarter, much better than the small drop it had predicted. That’s despite sales at its physical shops dropping 4.2%. Salvation came – as it almost always the case these days – in the form of online sales, which leaped 12%.

Next (LON:NXT) shares were leading the FTSE higher by mid-morning in London. At 4:15 AM ET, they were up 7.8%, while the FTSE was down 0.3%. Other European markets were largely treading water ahead of the Federal Reserve’s interest rate decision and press conference later Wednesday. The benchmark Stoxx 600 was effectively flat after its steep drop on Tuesday.

Next is one of a growing band of retailers who appear to have cracked the transition to multichannel distribution, moving away from traditional bricks-and-mortar operations. Its bigger fashion rivals, Inditex (MC:ITX) (the owner of Zara and Massimo Dutti) and H&M (ST:HMb) have offered variations on the same theme in recent years, H&M suffering particularly acutely from inventory management problems and misjudged commitments to new store openings.

At the depths of their respective falls from grace, Next was down 48% from its all-time high, Inditex was down 39% and H&M was down a whopping 66%. But Next is now at its highest in a year and H&M is testing an 18-month high. Inditex is up 22% from its December low.

Elsewhere Tuesday, German sportswear company Puma (DE:PUMG) went from strength to strength, rising 6.1% to an all-time high on the back of lucrative deals with soccer clubs Manchester City and European champions Liverpool, as well as its re-entry into the U.S. basketball market. The company raised its guidance for full-year operating profit and sales after a strong second quarter that contrasted starkly with disappointing reports from Nike (NYSE:NKE) and Under Armour (NYSE:UAA) in recent days.

But if Next, H&M and Inditex all owe the revival in their fortunes in some degree to transcending the traditional physical store, this week’s earnings reports have shown that there’s one sector that can’t do that. Shares in Intu Properties (LON:INTUP), which owns malls in the U.K. and Spain, fell 22% to their lowest in over 27 years on Tuesday after it reported widening losses in the second quarter. That dragged down rival Hammerson (LON:HMSO), which had reported its own tale of woe on Monday and which is now down 18% over the last week. For those whose business is the high street itself, salvation seems as far away as ever.

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