(ShareCast News) - Next has been downgraded by Credit Suisse to an 'underperform' rating from a prior 'neutral' as the clothes retailer's "routes to growth are slowing".Credit Suisse said it was increasingly concerned about the gradual slowdown in Next's near- and medium-term growth drivers.The Swiss bank had been worrying about the tough comparative figures from last year that were making it hard for the FTSE 100 company to report growth this year, with next year's gross margins likely to be capped by the strength of the US dollar.Moreover, the Next Directory catalogue arm is "looking increasingly mature" in the UK, while the contribution of UK bricks and mortar stores space is gradually slowing.To this angst is now also added concerns over the impact to margins from George Osborne's new National Living Wage (NLW), with projections that it will either have to increase hourly pay from £7.04/hour to over £7.20 by April or restructure its pay to include bonuses, as well as matching the expected 6.7% yearly increase in NLW over the next four years.With shares in Next having continued to re-rate higher on an absolute and relative basis since the start of the year, and with the shares now looking "extremely overbought" versus the FTSE100, CS downgraded its recommendation with a maintained 12-month target price of 7,450p."With Directory showing signs of maturity in the UK, and retail space growth contributing just 1.7% per annum to sales, profit growth is becoming largely reliant on margin expansion."As operating margins already stand at near 20%, this task appears particularly demanding in light of the minimum wage increases.
Next (NXT)