No celebration at gloomy Next despite hat-trick of upgrades

Retailer warns difficult economic outlook will hit trading in 201

Next has upgraded its profit forecasts for the third time this year to reflect a strong start to the summer. The retailer, which has repeatedly defied its own gloomy projections this year, said yesterday that it now expected to make a profit "close to" last year's £429m over the year to January 2010, thanks to better-than-expected stock clearance and summer trading.

For the first half to 25 July, Next posted pre-tax profits up by 6.9 per cent to £185.5m. Total retail sales rose by 0.8 per cent and its like-for-like sales fell by just 1.2 per cent. Simon Wolfson, the chief executive, said the retailer had "benefited from better weather" in the first half, particularly in May, June and early July. The retailer's overall summer sales were also boosted by "a marked uptick" at its 11 standalone homewares, Next Home, stores.

Even so, Mr Wolfson warned again that the retailer was anxious about the trading period ahead. "I think we will continue to see a subdued consumer environment for some time," he said.

Next is planning for like-for-like sales – which strip out the impact of new space – to be down by between 3.5 per cent and 6.5 per cent for the rest of its financial year, and Mr Wolfson is equally cautious on 2010. "Next year the budget deficit means there is downside threat to employment and taxation and the prospects of those cuts and rises are big enough to keep consumer demand subdued," he warned.

More positively, Next revealed that its prices will be flat in the second half to January after the biggest reorganisation of its sourcing operations in its recent history helped to protect the fashion retailer from the effects of the strong dollar.

Next, which has 515 stores, had previously expected to put up prices by between 3 per cent to 5 per cent in the six months to January 2010 due to the weak pound, but improved sourcing, negotiating lower prices and saving on the cost of freight, meant this was no longer the case.

"I think we have been more aggressive in ramping up new suppliers than we have been in the past," added Mr Wolfson. "Price inflation will be flat in the second half – that is all about us having achieved better prices with suppliers."

While some suppliers have been dropped, Next – which sources half of its products from the Far East – has achieved this primarily by getting suppliers to move manufacturing to lower-cost regions of a country, such as from Hong Kong to Shanghai within China. It has also placed bigger orders for specific garments at factories in lower-cost areas. While some production has been moved from Turkey to existing suppliers in China, Next has also moved manufacturing in the opposite direction to North Africa from the Far East, as quicker delivery times and lower freight costs offset more expensive production.

Mr Wolfson said that Next had also continued to smarten up the fashion content of its ranges, but denied it was chasing younger, more fashionable shoppers.