Next upgrades guidance as high street conditions improve

Next beat expectations in the past three months and upgraded its sales guidance for the second half, in the latest sign conditions on the UK high street are improving.

Simon Wolfson, chief executive at the fashion and homeware retailer, said: "I think we really are through the worst of the downturn. Having said that, I think people need to be careful with the third-quarter numbers because they are against particularly weak comparatives."

But he added consumers would face significant headwinds as a likely government spending squeeze hit home in 2010.

"The big worry is what the effect of increased tax and government spending cuts will be in the second half of next year. We're beginning to put our budgets together for next year and we will be taking that into account," he said.

Like-for-like retail sales fell 1.3 per cent in the three months to the end of October, beating analyst expectations of a 2 to 4 per cent decline. Next said like-for-likes in the second half were now expected to fall by up to 3 per cent, compared with previous guidance for a drop of up to 6.5 per cent.

"The most important thing has been the speed with which we've responded to new trends," said Mr Wolfson. "We've taken more risks with fashion and trend products...Where we've taken risks, more often than not we've been rewarded."

The Directory business saw sales jump 5.1 per cent, thanks to improved stock availability, a 2 to 3 per cent growth in customer base, and, according to Mr Wolfson, "customers finding more they wanted to buy".

Directory sales are now expected to rise between 4 and 6 per cent in the second half, compared with previous forecasts for an increase of up to 2 per cent.

Next said the revised sales guidance would boost the market consensus for full-year pre-tax profit by about £30m, to £472m.

Analysts said the group's decision to move into edgier, more trend-conscious women's wear was a winning strategy.

Eithne O'Leary at Oriel Securities said: "Next haven't had positive like-for-like growth in retail since 2004-05, so it's been a difficult few years. But we believe the progress they've made as a result of concentrating on newness and fashionability will push them into positive territory."

James Monro, analyst at S&P equity research, said the group was well-positioned to maintain its momentum. Next shares rose 102p to £19.12.