Is this FTSE 100 share a brilliant ISA buy or an investment trap?

Is Next (LSE: NXT) one of the biggest investment traps on the FTSE 100? Or is it a top ISA buy following recent share price falls?

We all know that the retail sector is on its knees. Latest data from the Office for National Statistics showed that underlying UK retail sales (excluding fuel) tanked 18.4% year-on-year in April. This was the worst result on record.

However, such a sharp decline was to be expected as lockdown measures and rising economic uncertainty smashed shop revenues. Surely things will now be on the up and up for the likes of Next?

No rapid recovery

I for one wouldn’t bank on it. As the boffins over at ING Group note, conditions might remain difficult for a lot longer as the fallout of Covid-19 lingers on. They say  that:“Social distancing requirements will mean that for many businesses, operating profitably will remain challenging [and] particularly for those that are more reliant on a high-volume, low-margin model.”

This threatens the ability of the likes of Next — a retailer which endured a 41% drop in full price sales between January 1 and April 25 — to bounce back. It warned less than a month ago that “the effects of the coronavirus will be felt for longer than we first anticipated” and that “the economic consequences and continued social distancing will mean that both retail sales and online sales will be disrupted even after full lockdown measures have been lifted.”

High risk

The Footsie firm generates nearly half of total turnover from its stores. Clearly it has a lot to fear as social distancing requirements roll on. But Next doesn’t only have to worry about a slow recovery on the British high street.

That latest Office for National Statistics data showed that online sales growth in the UK rocketed 30.9% year on year in April. This again reflected recent lockdown measures as Britons switched to do their shopping in cyberspace. It’ll be a hard ask to expect internet sales of clothing to keep soaring, however, as a severe economic shock approaches. According to GfK, consumer confidence on these shores is now at its lowest for more than a decade.

A FTSE 100 investment trap?

It all causes me to beg the question: quite what is the purpose of buying shares in the FTSE 100 stock today?

City brokers continue to cut back their near-term earnings estimates for Next. As I write, they expect the bottom line to shrink almost 70% on an annual basis in the fiscal year to March 2021. Those downgrades leave it trading on a conventionally-high forward price-to-earnings (P/E) multiple of around 32 times.

And more painful forecast reductions could be in the offing. That’s not just as the sales picture worsens but on the possibility that Brexit stress could cause sterling to sink again, in turn pushing costs higher. This is a FTSE 100 share I’ll continue to avoid.