European Apparel Pricing: Soft Demand Leads To Ongoing Price Pressure - Downgrade Next To Underperform

15 June 2017
Europe/United Kingdom
Equity Research
Apparel
European Apparel Pricing

Research Analysts
CHANNEL CHECK
Simon Irwin
44 20 7888 0320
simon.irwin@credit-suisse.com Soft demand leads to ongoing price pressure
Pradeep Pratti, CFA
44 207 888 5043 – Downgrade Next to Underperform
pradeep.pratti@credit-suisse.com
Correction: This replaces an earlier version published today. Here, we have corrected
Next's Target Price and Blue Sky/Grey Sky scenario values on pages 8 and 9.
Our June price survey shows that, in the face of continued weak demand for apparel
and increasing competition from online, pricing remains soft across Europe, despite it
being almost a year since the post Brexit weakness in sterling and two years since the
main falls in the Euro/US$. The two most influential brands remain Primark, which
comfortably retains its price advantage over peers, and Zara. While the price reductions
of the past two years appear to be complete, the bunching of prices clearly shows the
lack of pricing power in the face of higher US$ costs. ABF (PT 3,200p) and Zalando
(PT €47.5) remain our only Outperforms in the apparel space, we reiterate our
Underperform ratings for H&M (PT SKr200) and Inditex (PT €25), and are taking
Next back to Underperform (from N) with a 12m FWD target price of 4,000p (vs
4,250p).
■ Next: the price survey would seem to suggest that Next has cut entry level pricing
during S/S, possibly in response to the very poor 1Q sales (Retail -8.1%, Directory
+3.3%). We continue to believe that its strategy of expanding UK space is incorrect
for a mature retailer and that self-help from Credit, International and Label will
diminish, and potentially reverse, over the next two years. With earnings, margins
and cash conversion continuing to fall we regard Next as a value trap.
Figure 1: Stability in Spring/Summer prices but mid-market price ranges remain very narrow
120
100
80
60
40
20
0
Apr-14 Sep-14 Nov-14 Mar-15 Jun-15 Sep-15 Nov-15 Mar-16 Jun-16 Sep-16 Nov-16 Mar-17 June-17
H&M Zara New Look
Mango Gap Next
River Island Primark M&S
Source: Company data, Credit Suisse estimates
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
15 June 2017
What is our apparel pricing survey?

In our latest apparel survey we checked prices for H&M in 5 countries, Zara in 8 countries
and another 11 brands in UK, France, Italy and Germany.
We check 36 price points per brand per country, and this is the 13th survey we have
conducted in the past three years.
The survey measures the average price of an upper range and lower range, comprising
two cheapest and most expensive SKU's in 9 different product categories. We try to
ensure that pricing captures main ranges, not one-off or designer collections. As a result
we only capture the top and bottom of each retailer's price architecture, rather than the full
range. Nevertheless we do think this is indicative of range architecture and also believe
that consumer price perceptions of brands are materially driven by the extremes. Finally,
we do not believe that all price increases and decreases are LFL, reflecting different prices
for similar product, but also reflect design, materials, specification and labour input.
The work is done manually rather than via web scraping, and the authors would like to
acknowledge the contribution made by Dibya Prakash Sahoo, employed by CRISIL Global
Research and Analytics, a division of CRISIL Ltd, a third party provider of offshore
research services to Credit Suisse.
Late Spring/Summer conclusions

By and large prices in June are stable compared with the early season survey at the start
of March, when we noted significant and widespread price reductions both Y/Y and vs the
A/W season.
- M&S (N PT 370p) premium prices are stable vs March but still -38% Y/Y. This
confirms the price realignment that has been ongoing for the past year, but may
suggest that it is now complete. Entry level pricing was reduced earlier and now
looks stable Y/Y.
- Mango's premium prices have risen, although that is down to a small number of
silk dresses and leather trousers so is not particularly representative.
- Gap entry level prices have risen since March and it is one of the few retailers
where prices are now up Y/Y, when it's not discounting heavily.
Figure 2: UK Cheap Basket (£ per Avg Item) – most prices continue to decline Y/Y despite the weakness of
sterling
35
30
25
20
15
10
0
H&M Zara New Look
Mango Gap Next
River Island Primark M&S
European Apparel Pricing 2

15 June 2017
Primark's (ABF OP PT 3,200p) remains comfortably the best value in this survey. Entry
level prices appear to have risen, however given the limited amount of product that is
listed online, this may not be significant. Moreover many of the changes to our pricing
baskets are influenced by Accessories (Bags, Necklaces, Shoes) rather than core apparel.
Entry level peers such as New Look and Matalan have been trading poorly, but it may be
that the entry of Pep &Co (which opened 50 UK stores in 2016) has also added to
competitive pressure in the UK. Despite this Primark continues to trade well ahead of most
UK store-based peers with 1H (end Feb) LFL +2%, and we assume better trends since
then, given softer comps. Associated British Foods - The re-rating and de-rating of Primark
Figure 3: Range architecture has narrowed substantially over the past 2 years
100
90
80
70
60
50
40
30
20
10
0
H&M Zara New Look Warehouse Mango
Gap Next River Island Primark M&S
Ongoing pressure on input costs, although more mitigation than expected. Many
retailers have commented on obtaining better sourcing cost mitigation over the past six
months than expected. Now that commodity prices have annualized and transport costs
are increasing, there had been an expectation that a second successive year of material
cost mitigation would be hard to achieve, however such is the weakness of apparel
demand globally, that factory owners are clearly prepared to accept even lower margins to
keep their facilities open. This is not fully offsetting the impact of adverse FX rates as
hedges roll off, but is helping. On the other hand it is clear from our pricing work that there
are still no signs that apparel prices in Europe are rising to try to recover some of last
year's lost margin.
Figure 4: The impact from lagged exchange rates has eased in Europe but is
peaking in UK
Effective FX (£/US$) % chg Effective FX (US$/EUR) % chg
SS 14 1.536 -2.7% 1.307 2.6%
AW 14 1.631 3.0% 1.360 3.8%
SS 15 1.678 9.2% 1.356 3.8%
AW 15 1.558 -4.5% 1.200 -11.8%
SS 16 1.530 -8.8% 1.109 -18.2%
AW 16 1.488 -4.5% 1.099 -8.4%
SS 17 1.386 -9.4% 1.128 1.7%
AW 17 1.282 -13.9% 1.078 -1.8%
SS 18 1.269 -8.5% 1.111 -1.5%
AW 18 1.289 0.6% 1.128 4.5%
Source: Thompson Reuters, Credit Suisse estimates

15 June 2017
Zara – Global pricing analysis

We believe that the repositioning of Zara over the past two years has been the single
biggest influence on mid-market apparel pricing, and this has forced most peers to follow
suit.
Figure 5: Premium prices: June stable vs March but still negative mid/high teens Y/Y ex UK
Average quoted price of basket Spain (€) UK (£) France (€) Russia (₽) Japan (¥) USA ($) China (CN¥) Mexico (MXN)
Jun-15 74.68 86.94 90.80
Sep-15 80.19 81.88 96.96
Nov-15 78.01 79.16 94.52 7,988 17,248 153.74 929
Mar-16 62.23 62.27 76.74 6,993 13,569 119.83 701
Jun-16 56.34 56.38 67.34 6,699 11,296 108.07 599 1,299
Sep-16 56.17 63.16 62.62 6,699 10,240 107.29 605 1,332
Nov-16 57.28 65.16 66.45 6,999 10,824 111.13 640 1,421
Mar-17 48.95 55.66 55.62 5,363 8,823 88.82 511 1,210
Jun-17 49.51 56.21 58.39 5,443 9,157 92.71 539 1,249
% chg Y/Y -12.1% -0.3% -13.3% -18.7% -18.9% -14.2% -10.0% -3.8%
Quoted price is inc VAT inc VAT inc VAT inc VAT inc VAT ex taxes inc VAT inc VAT
VAT 21% 20% 20% 18% 8% 17% 16%
Average price ex-VAT Spain (€) UK (£) France (€) Russia (₽) Japan (¥) USA ($) China (CN¥)
Jun-15 61.72 72.45 75.66
Sep-15 66.27 68.23 80.80
Nov-15 64.47 65.97 78.77 6,769 15,970 153.74 794
Mar-16 51.43 51.89 63.95 5,927 12,564 119.83 599
Jun-16 46.56 46.98 56.12 5,677 10,459 108.07 512 1,120
Sep-16 46.42 52.63 52.18 5,677 9,481 107.29 517 1,149
Nov-16 47.34 54.30 55.38 5,931 10,023 111.13 547 1,225
Mar-17 40.45 46.38 46.35 4,545 8,170 88.82 437 1,043
Jun-17 40.91 46.84 48.66 4,613 8,478 92.71 461 1,077
Premium vs. Spain (spot FX) Spain UK France Russia Japan USA China Mexico
Jun-15 100 163 123
Sep-15 100 141 122
Nov-15 100 145 122 150 188 222 180
Mar-16 100 129 124 148 195 210 161
Jun-16 100 129 121 165 185 206 148 115
Sep-16 100 133 112 168 177 206 148 115
Nov-16 100 134 117 183 181 222 159 103
Mar-17 100 136 115 182 170 208 149 104
Jun-17 100 130 119 177 167 203 148 129
Following further price reductions at the start of S/S 17, pricing later in the season is now
stable, but still lower mid-high teens in most markets, apart from the UK. Inditex
management is clearly determined to maintain the pressure on peers.
At lower prices points they are broadly flat, so the range of price architecture continues to
narrow as has been the case for the past two years.
Regional prices differences have all been maintained, with Europe ex Spain nearly flat at
entry level but +15% vs Spain at upper levels. UK pricing is c30% higher than Spain,
China 50% higher and the US almost double. This means that there are some material
differences in gross margins by geography.

15 June 2017
Figure 6: Entry level prices are more stable and regional price differences are lower
Average quoted price of basket Spain (€) UK (£) France (€) Russia (₽) Japan (¥) USA ($) China (CN¥) Mexico (MXN)
Jun-15 16.13 16.27 17.90
Sep-15 15.39 15.43 18.51
Nov-15 17.41 14.16 17.41 1,393 2,757 21.81 146
Mar-16 16.17 14.99 16.17 1,843 3,090 23.90 158
Jun-16 14.60 14.60 14.78 1,693 2,790 25.34 153 332
Sep-16 15.55 15.55 15.51 1,710 2,879 23.36 160 343
Nov-16 14.43 14.43 15.62 1,555 2,657 22.60 150 325
Mar-17 15.60 15.60 15.91 1,666 3,046 23.71 156 398
Jun-17 14.38 14.38 14.78 1,599 2,879 23.08 148 367
% chg Y/Y -1.5% -1.5% 0.0% -5.6% 3.2% -8.9% -3.3%
Quoted price is inc VAT inc VAT inc VAT inc VAT inc VAT ex taxes inc VAT inc VAT
VAT 21% 20% 20% 18% 8% 17% 16%
Average price ex-VAT Spain (€) UK (£) France (€) Russia (₽) Japan (¥) USA ($) China (CN¥)
Jun-15 13.33 13.56 14.92
Sep-15 12.72 12.86 15.42
Nov-15 14.38 11.80 14.50 1,181 2,552 21.81 125
Mar-16 13.37 12.49 13.48 1,562 2,861 23.90 135
Jun-16 12.07 12.17 12.31 1,435 2,583 25.34 131 286
Sep-16 12.85 12.95 12.93 1,449 2,666 23.36 137 296
Nov-16 11.93 12.03 13.02 1,317 2,460 22.60 128 280
Mar-17 12.89 13.00 13.26 1,412 2,820 23.71 134 343
Jun-17 11.88 11.98 12.32 1,355 2,666 23.08 127 317
Premium vs. Spain (spot FX) Spain UK France Russia Japan USA China Mexico
Jun-15 100 141 112
Sep-15 100 138 121
Nov-15 100 116 101 117 135 141 127
Mar-16 100 120 101 150 171 161 140
Jun-16 100 129 102 161 176 186 147 114
Sep-16 100 118 101 155 180 162 142 107
Nov-16 100 117 109 161 176 179 148 93
Mar-17 100 119 103 177 184 174 143 108
Jun-17 100 115 104 179 181 174 140 131
Figure 7: Gross margins vary significantly by market

Gross margin Spain UK France Russia Japan USA China Mexico
Approximate Price relative 100 130 119 177 167 203 148 129
Indicative GM 46% 59% 55% 69% 68% 73% 64% 58%

15 June 2017
H&M – Global pricing analysis

H&M's pricing for the Euro zone tends to be identical, and even in non-Euro markets such
as UK and Switzerland, local pricing across Europe tends to be fairly flat. In US$ linked
markets, prices tend to be 25-35% higher.
Although upper basket pricing is still double digit negative Y/Y in most markets, it is
notably higher than in March, with higher price points in Trousers, Heels, Bags and Shorts.
The last time H&M traded well (2014 and early 2015) there was a lot of progress reviewing
ranges (Sport, Beauty) and adding premium alternatives with better raw materials (silk,
wool, leather) in core categories. Having focused more on value over the past 2 years it
may be that some of these premium initiatives are being re-introduced. Although these
prices are still quite high in an absolute sense relative to peers and don’t represent a
significant quantity of volumes sold, we believe they do help the brand appeal
Figure 8: Some premium ranges may be re-appearing at H&M

Average quoted price of basket Spain (€) UK (£) France (€) USA ($) China (CN¥)
Jun-15 93.27 76.38 93.27
Sep-15 119.50 95.55 119.50
Nov-15 122.99 95.82 121.05
Mar-16 102.11 79.10 102.11 136.88
Jun-16 91.10 71.38 91.71 114.33 904.83
Sep-16 91.27 73.88 91.27 116.22 797.50
Nov-16 80.16 63.88 80.16 97.33 711.39
Mar-17 69.77 57.93 69.77 83.66 612.39
Jun-17 81.22 67.27 82.33 101.22 807.44
-11% -6% -10% -11%
Quoted price is inc VAT inc VAT inc VAT ex VAT inc VAT
VAT 21% 20% 20% 17%
Average price ex-VAT Spain (€) UK (£) France (€) USA ($) China (CN¥)
Jun-15 77.08 63.65 77.73
Sep-15 98.76 79.62 99.58
Nov-15 101.65 79.85 100.87
Mar-16 84.38 65.92 85.09 136.88
Jun-16 75.29 59.48 76.43 114.33 773.36
Sep-16 75.43 61.57 76.06 116.22 681.62
Nov-16 66.25 53.23 66.80 97.33 608.02
Mar-17 57.66 48.28 58.14 83.66 523.41
Jun-17 67.12 56.06 68.61 101.22 690.12
Relative to Spain (spot FX) Spain UK France USA China

Jun-15 100 115 101
Sep-15 100 110 101
Nov-15 100 111 99
Mar-16 100 101 101 146
Jun-16 100 101 102 135 139
Sep-16 100 96 101 137 120
Nov-16 100 94 101 139 126
Mar-17 100 99 101 137 125
Jun-17 100 95 102 135 135
Entry level pricing is notably lower Y/Y in most markets, even the UK, which may reflect
H&M's need to start making inroads into the inventory mountain (1Q SKr32.7bn +30%
Y/Y).

15 June 2017
Figure 9: H&M's entry level prices remain competitive

Average quoted price of basket Spain (€) UK (£) France (€) USA ($) China (CN¥)
Jun-15 9.27 7.32 9.27
Sep-15 9.43 7.43 9.43
Nov-15 10.77 8.43 10.77
Mar-16 10.66 8.32 10.66 13.10
Jun-16 10.93 8.71 10.93 12.60 112.18
Sep-16 9.77 7.71 9.77 11.43 90.16
Nov-16 10.38 8.27 10.38 11.88 90.31
Mar-17 10.77 9.38 10.77 12.49 94.14
Jun-17 10.10 8.93 10.10 11.77 93.13
-8% 3% -8% -7%
Quoted price is inc VAT inc VAT inc VAT ex VAT inc VAT
VAT 21% 20% 20% 17%
Average price ex-VAT Spain (€) UK (£) France (€) USA ($) China (CN¥)
Jun-15 7.66 6.10 7.72
Sep-15 7.80 6.20 7.86
Nov-15 8.90 7.03 8.97
Mar-16 8.81 6.94 8.88 13.10
Jun-16 9.04 7.26 9.11 12.60 95.88
Sep-16 8.07 6.43 8.14 11.43 77.06
Nov-16 8.58 6.89 8.65 11.88 77.18
Mar-17 8.90 7.82 8.97 12.49 80.47
Jun-17 8.35 7.45 8.42 11.77 79.60
Relative to Spain (spot FX) Spain UK France USA China

Jun-15 100 111 101
Sep-15 100 109 101
Nov-15 100 112 101
Mar-16 100 102 101 134
Jun-16 100 103 101 124 143
Sep-16 100 93 101 126 127
Nov-16 100 94 101 131 123
Mar-17 100 104 101 133 124
Jun-17 100 102 101 126 125

15 June 2017
Europe/United Kingdom
Apparel
Next (NXT.L)
Rating (from NEUTRAL) UNDERPERFORM
Price (13 Jun 17, p) 4226.20
Target price (p) (from 4250.00) 4000.00
Market Cap (£ m)
Enterprise value (£ m)
6,214.9
7,102.4
Wrong strategy in a poor market as self-help
Target price is for 12 months.
fades
Research Analysts
■ Mature apparel retailers have to face up to ongoing market share loss
Simon Irwin
44 20 7888 0320
as apparel markets fragment and demand migrates online. In addition we
simon.irwin@credit-suisse.com see little sign of apparel demand recovering, especially in the UK, given
Pradeep Pratti, CFA deflation, weak collections and negative real wage growth. In this
44 207 888 5043 environment, Next's strategy of continuing to add space and increase prices
pradeep.pratti@credit-suisse.com
feels wrong, and while self-help to apparel collections may improve through
the year, the environment for homeware is likely to deteriorate. It's therefore
not certain that the rest of the year will improve on 1Q when sales were -3%
(Retail -8.1%, Directory +3.3%) despite soft comps and better weather.
■ 2016/17 PBT fell £31m, despite profit from Credit, Label and
International increasing £49m, giving a sense of the declines in the core
Next UK Brand (-12%, margin -180bp): However all of the non-core
increases were one-off to some degree, and we see the combined
contribution from the three being £11m this year and negative next, as credit
income rolls over. While credit account numbers stabilized in 2H, the quality
of new additions is low, and overall account growth in 2H (+30/-) and FY
(+180/-) is at multi-year lows. Core Directory margins (ex Credit, Label, Intnl)
have been falling in a near straight line for 6 years, and we see little change
in the proposition which will alter that.
■ Following the weak 1Q we are cutting 4% from forecasts. Where our
forecasts principally differ from consensus is in the multi-year structural
nature of the decline in profitability and cash conversion. Consequently while
the 7.8% dividend yield provides some support, we forecast special dividends
falling by at least 10% pa, as balance sheet leverage increases. We are
cutting our 12m FWD target price by 6% to 4,000p (vs 4,250p) and are
downgrading our rating to Underperform (vs Neutral).
Share price performance Financial and valuation metrics
8 ,5 0 0 Year 1/17A 1/18E 1/19E 1/20E
7 ,5 0 0 Revenue (£ m) 4,136.8 4,099.2 4,074.9 4,059.7
6 ,5 0 0 EBITDA (£ m) 935.2 849.4 791.2 748.9
5 ,5 0 0 Pre-tax profit adjusted (£ m) 790.20 708.88 651.33 608.49
4 ,5 0 0 CS EPS (adj.) (p) 438.14 389.73 359.91 342.52
3 ,5 0 0 Prev. EPS (p) - 406.50 376.70 -
Ju l - 1 5 Jan - 1 6 Ju l - 1 6 Jan - 1 7 P/E (adj.) (x) 9.6 10.8 11.7 12.3
P/E rel. (%) 52.7 70.9 82.5 93.9
N XT .L FT SE A LL SH A RE IN D EX
EV/EBITDA (x) 7.6 8.4 8.9 9.4
The price relative chart measures performance against the Dividend (01/18E, £) 158.00 Net debt/equity (01/18E,%) 159.7
FTSE ALL SHARE INDEX which closed at 4103.1 on Dividend yield (01/18E,%) 3.7 Net debt (01/18E, £ m) 887.5
13/06/17 BV/share (01/18E, £) 3.9 IC (01/18E, £ m) 1,443.3
On 13/06/17 the spot exchange rate was £.88/Eu 1.-
Free float (%) 100.0 EV/IC (01/18E, (x) 4.9
Eu.89/US$1
Source: Company data, Thomson Reuters, Credit Suisse estimates
Performance 1M 3M 12M
Absolute (%) -0.5 12.2 -16.5
Relative (%) 0.8 11.6 -40.2

15 June 2017
Next (NXT.L)
Price (13 Jun 2017): 4226.20p; Rating: (from NEUTRAL) UNDERPERFORM; Target Price: (from 4250.00p) 4000.00p; Analyst:
Simon Irwin
Income statement (£ m) 1/17A 1/18E 1/19E 1/20E Company Background
Revenue 4,137 4,099 4,075 4,060 Next plc is a United Kingdom-based retailer offering products in
EBITDA 935 849 791 749 clothing, footwear, accessories and home products. Next distributes
Depr. & amort. (108) (104) (102) (99) through three main channels: Next Retail; Next Directory; and
EBIT 828 745 689 649 Website.
Net interest exp. (38) (36) (38) (41)
Associates - - - - Blue/Grey Sky Scenario
PBT 790 709 651 608
Income taxes (155) (135) (124) (110)
Profit after tax 635 574 528 499
Minorities - - - -
Preferred dividends - - - -
Associates & other 0 0 0 0
Net profit 635 574 528 499
Other NPAT adjustments 0 0 0 0
Reported net income 635 574 528 499
Cash flow (£ m) 1/17A 1/18E 1/19E 1/20E
EBIT 828 745 689 649
Net interest (31) (36) (38) (41)
Cash taxes paid (151) (155) (135) (124)
Change in working capital (88) 39 49 49
Other cash and non-cash items 111 98 94 91
Cash flow from operations 668 690 660 625
CAPEX (157) (130) (130) (130)
Free cashflow to the firm 511 560 530 495
Acquisitions - - - -
Divestments 3 0 0 0
Other investment/(outflows) 0 0 0 0
Cash flow from investments (154) (130) (130) (130)
Net share issue/(repurchase) (188) (30) (33) (36)
Dividends paid (314) (496) (449) (415)
Issuance (retirement) of debt - - - - Our Blue Sky Scenario (p) (from 5300.00)
Cashflow from financing (522) (547) (503) (472) 5000.00
Changes in net cash/debt (8) 12 25 23 The Blue Sky scenario has near-term earnings 5% higher than
existing forecasts and terminal margins 200bp higher. We increase
Net debt at start 891 899 887 862 the 12m FWD PER from 11x to 13x (1sd above the M-T mean) and
Change in net debt 8 (12) (25) (23) decrease the FCF Yield from 8% to 6%. This gives a 12m FWD
Net debt at end 899 887 862 839 valuation of 5,000p.
Balance sheet (£ m) 1/17A 1/18E 1/19E 1/20E
Assets Our Grey Sky Scenario (p) (from 3450.00)
Total current assets 1,661 1,676 1,651 1,623 3250.00
Total assets 2,405 2,446 2,449 2,451 The Grey Sky scenario has near-term earnings 5% lower than
Liabilities existing forecasts and terminal margins 200bp lower. We reduce the
Total current liabilities 1,639 1,648 1,640 1,634 12m FWD PER from 11x to 9x (1sd below the M-T mean) and
Total liabilities 1,894 1,890 1,877 1,864 increase the FCF yield from 8% to 10%. This gives a 12m FWD
Total equity and liabilities 2,405 2,446 2,449 2,451 valuation of 3,250p.
Per share 1/17A 1/18E 1/19E 1/20E
No. of shares (wtd avg.) (mn) 145 147 147 146 Share price performance
CS EPS (adj.) (p) 438.14 389.73 359.91 342.52
Dividend (p) 158.00 158.00 158.00 158.00 8,500
Free cash flow per share (p) 352.48 380.19 361.58 340.14
7,500
Key ratios and valuation 1/17A 1/18E 1/19E 1/20E
Growth/Margin (%) 6,500
Sales growth (%) (0.3) (0.9) (0.6) (0.4)
5,500
EBIT growth (%) (2.8) (10.0) (7.5) (5.8)
Net income growth (%) (3.0) (9.6) (8.1) (5.4) 4,500
EPS growth (%) 0.6 (11.0) (7.6) (4.8) 3,500
EBITDA margin (%) 22.6 20.7 19.4 18.4
Sep- 15 Jan- 16 May- 16 Sep- 16 Jan- 17 May- 17
EBIT margin (%) 20.0 18.2 16.9 16.0
Pretax profit margin (%) 19.1 17.3 16.0 15.0
NXT.L FTSE ALL SHARE INDEX
Net income margin (%) 15.4 14.0 12.9 12.3
Valuation 1/17A 1/18E 1/19E 1/20E
EV/Sales (x) 1.7 1.7 1.7 1.7 The price relative chart measures performance against the FTSE ALL SHARE
EV/EBITDA (x) 7.6 8.4 8.9 9.4 INDEX which closed at 4103.1 on 13/06/17
EV/EBIT (x) 8.6 9.5 10.3 10.9 On 13/06/17 the spot exchange rate was £.88/Eu 1.- Eu.89/US$1
Dividend yield (%) 3.74 3.74 3.74 3.74
P/E (x) 9.6 10.8 11.7 12.3
Credit ratios (%) 1/17A 1/18E 1/19E 1/20E
Net debt/equity (%) 176.1 159.7 150.8 142.8
Net debt to EBITDA (x) 1.0 1.0 1.1 1.1
Interest coverage ratio (x) 22.1 20.7 18.1 15.8
Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates

15 June 2017
Key Charts
Figure 10: Price momentum has recovered Figure 11: EPS momentum remains very weak
30% 12% 560 8,500
Overbought
510 7,500
20% 10%
460 6,500
Next share price (p)

10% 8% 410
5,500
EPS (p)
360
0% 6% 4,500
310
-10% 4%
3,500
260
210 2,500
-20% Oversold 2%
160 1,500
-30% 0% 110 500
Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17
Next % dev from 6m ave, lhs Average (+/-1SD) Next rel to UK mkt FY14 FY15 FY16 FY17
FY18E FY19E Share price
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
Figure 12: 12M Fwd PE is broadly in line with its Figure 13: Fwd PE relative to FTSE100 looks cheap
history as do most UK retailers
19 1.4
1.3
17
1.2
15
1.1
13
1.0
11
0.9
9 0.8
7 0.7
5 0.6
Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17
0.5
NXT Fwd PE average +1 SD -1 SD Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
Figure 14: Special dividends will fall along with cash Figure 15: Rising gross margins have supported
conversion weak sales metrics until now
Year to Jan 2016A 2017A 2018E 2019E 2020E
58% 22%
Net debt 852 865 805 778 755
Cash conversion 57% 77% 94% 96% 95% 57%
20%
Cash conversion (ex credit) 91% 84% 89% 85% 83%
Lease adj debt/EBITDAR 2.2 2.3 2.5 2.7 2.9 56%
Buybacks -151 -188 -30 -33 -36 18%
55%
Diluted EPS 435 438 390 360 343
% chg 6.3% 0.6% -11.0% -7.7% -4.8% 54% 16%
Fully diluted EPS 417 438 387 357 340
Ordinary DPS/share 158 158 158 158 158 53%
14%
Cover 2.8 2.8 2.5 2.3 2.2 52%
Interim 53 53 53 53 53
12%
Final 105 105 105 105 105 51%
Special DPS/share 230 60 180 150 128
50% 10%
Total payout ratio 93% 50% 87% 86% 84%
2007 2009 2011 2013 2015 2017 2019E 2021E
Next Brand GM (LHS) Next Brand EBIT margin
Margin ex Credit/Label/Intnl
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

15 June 2017
What has changed?

1Q sales were 3% below our forecasts and 1% below consensus. The main issue was
Retail -8.1% Y/Y, and with space adding c2.7% that implies LFL of nearly -11% on a soft
base, with weather being broadly helpful. While Directory was +3.3%, with International
and Label adding 4-5%, that still implies that UK Next Brand in Directory was c-2%.
Figure 16: Quarterly Sales

Y/E Jan (% chg Y/Y) Q1 17 Q2 17 H1 17 Q3 17 Q4 17 FY Q1 18 Q2 18 H1 18 Q3 18 Q4 18 FY
Total Next Brand sales -0.9 0.3 -0.3 -3.5 -0.3 0.0 -3.0 -1.7 -2.3 -0.3 -0.1 -1.2
Total Next Retail sales -4.7 -3.3 -4.0 -5.9 -3.5 -2.9 -8.1 -5.0 -6.4 -2.8 -2.0 -4.4
Retail LFL (full price) -7.4 -5.8 -6.5 -8.4 -6.0 -5.4 -10.8 -7.5 -9.0 -5.0 -4.0 -6.6
2 yr LFL sales -10.3 -8.0 -5.6 -9.5 -18.2 -13.3 -13.4 -10.0
3 yr LFL sales -5.3 -5.4 -7.0 -12.6 -21.1 -15.5 -10.6 -13.5
Directory FP sales 4.2 5.7 4.9 0.0 5.1 4.2 3.3 3.0 3.2 3.0 3.0 3.0
2Y Directory 13.4 10.7 6.2 7.1 7.5 8.7 3.0 8.1
3Y Directory 27.1 29.5 15.9 14.6 16.7 13.7 9.2 10.1
Brand ex space -2.5 -1.2 -1.8 -5.1 -2.0 -4.6 -1.2 -2.7 -1.8 -1.4
2Y -0.7 -0.8 -1.2 -3.5 -7.1 -2.4 -6.9 -3.4
Space Contbn to Retail 2.7% 2.5% 2.6% 2.5% 2.5% 2.7% 2.5% 2.6% 2.2% 2.0% 2.2
The company is pinning most of the blame on gaps in its product ranges arising from the
implementation of its short game strategy, implying that products have become too edgy
for its core family-oriented customers. The initiative was aimed at speeding up time to
market, not turning Next into a fast fashion retailer, and they do believe they can
progressively rectify this through the rest of the year, however that remains to be proved.
In addition homeware has become softer and more promotional as housing transaction
numbers have declined Y/Y.
Next was not blaming their decision to increase prices, in a market that remains
deflationary and competitive. Nevertheless we do not believe that the entry price
reductions identified in our survey are entirely coincidental. In categories such as Skirts,
Dresses, Trousers, Jeans and shoes this has brought prices down to levels which we have
rarely seen from Next in the past 3 years.
Since 1Q most UK retail metrics have continued to deteriorate, as the squeeze on family
budgets is playing out a bit faster than expected, and we would be concerned about the
impact of slowing residential transactions on Next's homeware sales.
Over-reliance on Directory:
Next Retail operating profits fell from £402m (16.9% sales) to £339m (14.7%) in 2016/17.
Given current trends in Retail, this decline seems likely to continue at a similar level in the
current year. However the Group PBT decline of just £31m resulted from another strong
performance in Directory where EBIT increased from £405m (24.4% of sales) to £444m
(25.7%).
The principal drivers of this were Credit (+£22m), Label (+£12m) and International
(+£15m) and similar future growth rates look very look unlikely.
Given the prominence of UK unsecured consumer lending, we would also focus on
Directory's credit customer numbers. While the company made a big deal over the relative
stability of its Credit A/C metrics in 2H, we have some reservations:

15 June 2017
Figure 17: Directory customer numbers are still a concern

H1 15 1H Y/Y FY 15 2H 1H Y/Y FY 16 2H Y/Y H1 17 1H Y/Y FY 17 2H Y/Y
Credit Customers 2740 -58 -38 2724 -16 -114 -130 2580 -30 -144 2500 -80 -110 2500 0 -80
Cash Customers 1240 339 397 1394 154 456 610 1970 120 576 2200 230 350 2230 30 260
UK Cash 810 177 190 899 89 241 330 1210 70 311 1350 140 210 1380 30 170
Overseas Cash 430 162 207 495 65 215 280 760 50 265 850 90 140 850 0 90
Active Customers 3980 281 359 4118 138 342 480 4550 90 432 4700 150 240 4730 30 180
UK Active 3550 119 152 3623 73 127 200 3790 40 167 3850 60 100 3880 30 90
The first is that overall active customer growth in 2H (+30/-) and FY (+180/-) are at
multi-year lows. The slowdown was at all levels including International (FY +90/-), UK
cash (FY +170/-) and UK credit (FY -80/-).
The second is that we assume the quality of new credit accounts is low as Next has
ramped up the marketing, so new joiners are offered 0% interest free for 3 months and
£10 off the first order (on orders >£15). It is reasonable to assume that the churn on these
new accounts will be quite high once the initial benefits have been taken, and the yield on
the credit book will decline as interest free is used more tactically in this and other
initiatives (ie furniture).
The average credit balance per account was £390 vs £262 two years earlier and we
already believe that this had a detrimental impact on Directory sales last year. Without this
increasing even more, or bad debt levels declining even more, we believe this will
inevitably decline on lower yields (more interest free) or lower account numbers as lower
quality adds churn faster.
Figure 18: Intnl/Label had a good year, off a low base

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Intnl cash customers 0.08 0.15 0.27 0.50 0.76 0.85 1.00 1.15 1.30
International sales 33 54 101 163 197 234 279 309 344
Intnl sales/customer 466 411 486 427 314 291 302 287 281
% chg 230% 63.6% 87.0% 61.4% 20.9% 18.8% 19.2% 10.8% 11.3%
Intnl EBIT 7 10 18 30 31 46 61 62 69
% sales 21.2% 18.5% 17.8% 18.4% 15.7% 19.7% 22.0% 20.0% 20.0%
Label sales 81 89 145 180 206 231 251 281
Label EBIT 9 17 20 22 34 38 41 46
% sales 11.0% 19.0% 14.0% 12.2% 16.5% 16.5% 16.5% 16.5%
Total Intnl/Label sales 33 135 190 308 377 440 510 560 625
% Brand sales 1.0% 4.0% 5.3% 7.9% 9.3% 10.9% 12.8% 14.2% 15.9%
Contbn to sales growth 1.0% 3.0% 1.5% 3.0% 1.7% 1.6% 1.8% 1.3% 1.7%
Contbn to profit growth 1.2% 1.9% 2.3% 2.0% 0.4% 3.4% 2.7% 0.6% 1.9%
Label grew sales by 14.4% (vs 24%) but margins recovered to 16% (vs 12%) on lower
markdown. Guidance for the year ahead is for sales growth of 17% but maintained
margins which would give a Y/Y contribution of £5m (vs £12m), and given the branded
product it is hard to see how margins could be higher in the medium term.
International saw sales +19% in constant currency and margins of 22% (vs 16%). It is
clearly benefitting from the weakness of sterling on translation and prices will not be
increased (unlike the UK), so Next is guiding to reported sales growth of 24% and margins
+200bp to 22% giving a £17m increase in profits (vs £15m). Our only concern with this is
the low level of customer recruitment (+90/- in 2016/17 vs +265/- and 227/- in the prior two
years). Given the high cost of recruitment, this lower level would have been quite
favourable to margins in 16/17 and it comes as sales per customer continue to fall.

15 June 2017
So while the three businesses grew EBIT by £49m in 2016/17, we see that declining
to £11m in the year ahead and may decline the following year, unless the very high
margins in Intnl are sustainable as FX annualises.
Meanwhile core Directory margins (ex Credit, International and Label) have been declining
in a near straight line for the past 6 years, and we see little reason for this to change
unless they can get the Directory proposition back ahead of the market or the Next
product/brand appeal improves materially, in what we expect to remain a difficult
environment. We therefore maintain our view that Directory profits have peaked and will
decline in subsequent years.
Consequently while the 4.1% cut to current year forecasts is not significantly different from
consensus, or the mid-range of company guidance (PBT £710m) what we believe
distinguishes our forecasts from consensus is the structural nature of the decline over the
next three years or more:
Figure 19: Changes to forecasts are long term

Old Forecasts 2017A 2018E 2019E 2020E
LFL Retail -4.0% -4.0% -3.0%
Directory growth 0.9% 1.8% 0.9%
Retail GM chg bp 0 0 0
Directory GM chg bp 0 -80 0
PTP - clean 739 681 638
EPS - diluted 406 377 359
% chg -7.2% -7.3% -4.6%
Total DPS 338 308 287
New Forecasts 2017A 2018E 2019E 2020E
LFL Retail -5.4% -6.6% -4.0% -3.0%
Directory growth 4.2% 3.0% 1.8% 0.9%
Retail GM -90 -20 0 0
Directory GM -40 -20 -80 0
PTP - clean 790 709 651 608
EPS - diluted 438 390 360 343
% chg 0.6% -11.0% -7.7% -4.8%
Total DPS 218 338 308 286
EPS Revision -4.1% -4.5% -4.7%
Cons PBT 719 703 699
Cons EPS 397 391.9 395.1
CS vs cons -1.8% -8.2% -13.3%
Source: Company data, Credit Suisse estimates, Consensus Thomson Reuters
Profit based measures tend not to be useful for valuing shrinking businesses, and we
believe that Next is likely to be supported more on cash generation and dividends, and the
shares now trade on c9% FCF yield and 7.8% dividend yield.
On our forecasts cash conversion will improve marginally in 17/18 as a result of the lower
capex (£130m vs £161m) however as margins and EPS decline, a maintained ordinary
payment leads to cover decreasing, and leverage going up. We assume that Next will
want to start reducing net debt to keep debt metrics under control, and thus the special
dividend payments will decline quite sharply in subsequent years.

15 June 2017
Figure 20: Dividend payments are not sustainable

Year to Jan 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E
Net debt 530 576 493 517 499 852 865 805 778 755
Cash conversion 56% 70% 91% 79% 89% 57% 77% 94% 96% 95%
Cash conversion (ex credit) 60% 86% 97% 94% 94% 91% 84% 89% 85% 83%
Lease adj debt/EBITDAR 2.5 2.4 2.2 2.1 1.9 2.2 2.3 2.5 2.7 2.9
Buybacks -222 -291 -242 -296 -138 -151 -188 -30 -33 -36
Diluted EPS 217 249 290 355 410 435 438 390 360 343
% chg 16.6% 15.1% 16.4% 22.6% 15.3% 6.3% 0.6% -11.0% -7.7% -4.8%
Fully diluted EPS 207 239 281 347 404 417 438 387 357 340
Ordinary DPS/share 78 90 105 129 150 158 158 158 158 158
Cover 2.8 2.8 2.8 2.8 2.7 2.8 2.8 2.5 2.3 2.2
Interim 25 28 31 36 50 53 53 53 53 53
Final 53 63 74 93 100 105 105 105 105 105
Special DPS/share 0.0 0.0 0.0 0.0 150 230 60 180 150 128
Total payout ratio 38% 38% 37% 37% 74% 93% 50% 87% 86% 84%
We have only made marginal changes to our target price methodology, except to remove
the reducing credit balance from the FCF yield calculation, given that it is not sustainable.
It is also worth noting that in our DCF we still have a 15% EBIT margin into perpetuity,
which seems quite generous given Next's current performance and industry peers.
Figure 21: Target price and Blue/Grey Sky scenarios

TP Method Current 12m FWD Grey Sky 12m FWD Blue Sky 12m FWD
11x 12m FWD PE 4150 3879 9x 12m FWD PE 3015 13x 12m FWD PE 4814
DCF (7.4% WACC) 3798 4073 Margin -200bp 3666 Margin +200bp 4480
8% FCF Yield 4333 3984 10% FCF Yield 3028 6% FCF Yield 5578
Total 4091 4000 3250 5000

15 June 2017
Companies Mentioned (Price as of 14-Jun-2017)

Associated British Foods (ABF.L, 3022.0p)
Hennes & Mauritz (HMb.ST, Skr212.2)
Inditex (ITX.MC, €35.22)
Marks & Spencer (MKS.L, 369.3p)
Next (NXT.L, 4253.9p, UNDERPERFORM, TP 4000.0p)
The Gap, Inc. (GPS.N, $23.25)
Zalando (ZALG.DE, €43.46)
Disclosure Appendix
Analyst Certification
Simon Irwin and Pradeep Pratti, CFA, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views
expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Next (NXT.L)
NXT.L Closing Price Target Price Target Price Closing Price NXT.L
Date (p) (p) Rating 8,500
30-Jun-14 6035.06 6387.16 N
31-Dec-14 6405.94 6632.37 7,500
25-Mar-15 6835.79 7166.39 6,500

28-Aug-15 7642.55 7166.39 U
5,500
14-Sep-15 7353.97 6980.13
22-Dec-15 6975.28 6786.23 4,500
06-Jan-16 6655.36 6456.23
3,500
29-Mar-16 5512.25 5478.01 01- Jan- 2015 01- Jan- 2016 01- Jan- 2017
04-May-16 5037.81 5086.72 N
24-Jun-16 4742.39 4842.17 N EU T RA L
U N D ERPERFO RM
03-Nov-16 4979.12 4499.79 U
05-Jan-17 3999.93 4010.69 N
31-Mar-17 4225.89 4250.00
* Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

15 June 2017
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (65% banking clients)
Neutral/Hold* 40% (61% banking clients)
Underperform/Sell* 14% (53% banking clients)
Restricted 2%
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products
may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made
available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the
frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with
the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely
manner, please contact your sales representative or go to https://plus.credit-suisse.com .
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-
suisse.com/sites/disclaimers-ib/en/managing-conflicts.html .
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating

Valuation Methodology and Risks: (12 months) for Next (NXT.L)
Method: We base the 4000p target price on a basket of factors including: a DCF of 4,073p (0% TGR WACC 7.4%) and 11x 12m FWD PE, a 20%
discount to UK retail and a FCF yield of 8%. Our forecasts are notably below consensus for outer years given our caution over its
consumer credit business which contributes c19% of PBT. With the shares now 8% above our 12m FWD target price we rate the shares
Underperform relative to the UK and European retail sector.
Risk: On the upside, the principal risk to our target price and rating would be upward revisions in earnings guidance or an upward re-rating of
the UK retail sector. In terms of downside risk to our target price and rating there have been significant change in a very experienced
management team which could lead to poorer execution/collections, and there could be adverse product trends, or the recovery by one of
Next's larger competitors.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations
typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): ABF.L, ZALG.DE, MKS.L
Credit Suisse provided investment banking services to the subject company (ABF.L, ZALG.DE) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): ABF.L, ZALG.DE
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ABF.L, ZALG.DE, GPS.N,
MKS.L) within the next 3 months.
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of
Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (NXT.L, ITX.MC, ZALG.DE, HMb.ST, GPS.N)
within the past 12 months.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-
suisse.com/disclosures or call +1 (877) 291-2683.
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated
within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=305662&v=-5i1gj782eru54sed7lvg03x1c .
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse
does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
15 June 2017
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-
suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (ABF.L).
The following disclosed European company/ies have estimates that comply with IFRS: (NXT.L, ABF.L, ITX.MC, HMb.ST, MKS.L).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ZALG.DE) within the past 3
years.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
This research report is authored by:
Credit Suisse International...................................................................................................................................Simon Irwin ; Pradeep Pratti, CFA
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important
disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research
analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the
FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a
research analyst account.
Credit Suisse International...................................................................................................................................Simon Irwin ; Pradeep Pratti, CFA
Important disclosures regarding companies or other issuers that are the subject of this report are available on Credit Suisse’s disclosure website at
https://rave.credit-suisse.com/disclosures or by calling +1 (877) 291-2683.

15 June 2017
This report is produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may
contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use
would be contrary to law or regulation or which would subject Credit Suisse or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is
under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks
and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates.The information, tools and material presented in this report are provided to you for information purposes only and are
not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for
any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that
you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy
is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser.
Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their
accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations
applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions
from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications
are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market
maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and
estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can
fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such
as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are
capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange
rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and
consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in
their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such
circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some
investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report
may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such
address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such
website or following such link through this report or CS's website shall be at your own risk.
This report is issued and distributed in European Union (except Switzerland): by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Germany: Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht
("BaFin"). United States and Canada: Credit Suisse Securities (USA) LLC; Switzerland: Credit Suisse AG; Brazil: Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; Mexico: Banco Credit Suisse (México), S.A. (transactions
related to the securities mentioned in this report will only be effected in compliance with applicable regulation); Japan: by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (
Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; Hong Kong: Credit Suisse (Hong
Kong) Limited; Australia: Credit Suisse Equities (Australia) Limited; Thailand: Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990
Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok10500, Thailand, Tel. +66 2614 6000; Malaysia: Credit Suisse Securities (Malaysia) Sdn Bhd; Singapore: Credit Suisse AG, Singapore Branch; India: Credit
Suisse Securities (India) Private Limited (CIN no.U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no.
INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777; South Korea: Credit Suisse Securities (Europe) Limited,
Seoul Branch; Taiwan: Credit Suisse AG Taipei Securities Branch; Indonesia: PT Credit Suisse Securities Indonesia; Philippines:Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of
the above.
Additional Regional Disclaimers
Hong Kong: Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian
financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian
wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person.
Australia (to the extent services are offered in Australia): Credit Suisse Securities (Europe) Limited (“CSSEL”) and Credit Suisse International (“CSI”) are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct
Authority (“FCA”) and the Prudential Regulation Authority under UK laws, which differ from Australian Laws. CSSEL and CSI do not hold an Australian Financial Services Licence (“AFSL”) and are exempt from the requirement to hold an AFSL
under the Corporations Act (Cth) 2001 (“Corporations Act”) under Class Order 03/1099 published by the Australian Securities and Investments Commission (“ASIC”), in respect of the financial services provided to Australian wholesale clients
(within the meaning of section 761G of the Corporations Act). This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's professional clients and eligible counterparties as defined by the FCA, and wholesale
clients as defined under section 761G of the Corporations Act. Credit Suisse (Hong Kong) Limited (“CSHK”) is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from
Australian laws. CSHKL does not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian
wholesale clients (within the meaning of section 761G of the Corporations Act). Credit Suisse Securities (USA) LLC (CSSU) and Credit Suisse Asset Management LLC (CSAM LLC) are licensed and regulated by the Securities Exchange
Commission of the United States under the laws of the United States, which differ from Australian laws. CSSU and CSAM LLC do not hold an AFSL and is exempt from the requirement to hold an AFSL under the Corporations Act under Class
Order 03/1100 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Corporations Act).
Malaysia: Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020.
Singapore: This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by
Credit Suisse AG, Singapore Branch to overseas investors (as defined under the Financial Advisers Regulations). Credit Suisse AG, Singapore Branch may distribute reports produced by its foreign entities or affiliates pursuant to an
arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact Credit Suisse AG, Singapore Branch at +65-6212-2000 for matters arising from, or in connection with, this report. By virtue of your
status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore Branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110
of Singapore (the “FAA”), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore Branch may provide to you.
UAE: This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional
Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates.
EU: This report has been produced by subsidiaries and affiliates of Credit Suisse operating under its Global Markets Division
In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade
be made in accordance with applicable exemptions from registration or licensing requirements. Non-US customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. US
customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the US.
Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should
seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK
or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation
Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report.
CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not
viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or
fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials,management, employees or agents thereof) and CS for CS to
provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the
municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial
Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its
affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not
constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or
consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2017 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can
be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to
pay the purchase price only.

European Apparel Pricing: Soft Demand Leads To Ongoing Price Pressure - Downgrade Next To Underperform

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

European Apparel Pricing: Soft Demand Leads To Ongoing Price Pressure - Downgrade Next To Underperform

Загружено:

Авторское право:

Доступные форматы

15 June 2017

European Apparel Pricing

Source: Company data, Credit Suisse estimates

What is our apparel pricing survey?

Late Spring/Summer conclusions

Source: Company data, Credit Suisse estimates

European Apparel Pricing 2

Gap Next River Island Primark M&S

Source: Company data, Credit Suisse estimates

European Apparel Pricing 3

Zara – Global pricing analysis

European Apparel Pricing 4

Figure 7: Gross margins vary significantly by market

European Apparel Pricing 5

H&M – Global pricing analysis

Figure 8: Some premium ranges may be re-appearing at H&M

Relative to Spain (spot FX) Spain UK France USA China

European Apparel Pricing 6

Figure 9: H&M's entry level prices remain competitive

Relative to Spain (spot FX) Spain UK France USA China

European Apparel Pricing 7

European Apparel Pricing 8

European Apparel Pricing 9

Next share price (p)

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream

European Apparel Pricing 10

What has changed?

Figure 16: Quarterly Sales

European Apparel Pricing 11

Figure 17: Directory customer numbers are still a concern

Figure 18: Intnl/Label had a good year, off a low base

European Apparel Pricing 12

Figure 19: Changes to forecasts are long term

European Apparel Pricing 13

Figure 20: Dividend payments are not sustainable

Figure 21: Target price and Blue/Grey Sky scenarios

European Apparel Pricing 14

Companies Mentioned (Price as of 14-Jun-2017)

25-Mar-15 6835.79 7166.39 6,500

European Apparel Pricing 15

Target Price and Rating

European Apparel Pricing 17

European Apparel Pricing 18

Вам также может понравиться