Next adds to high street feelgood factor

Profits forecast upgraded as consumer spending recovers in fourth quarter; Next joined by smaller retailers in reporting better-than-expected Christmas

The fashion chain Next became the latest retailer to report a bumper Christmas yesterday, amid signs of a recovery in consumer spending. It announced its first underlying sales growth for five years and its fifth profits upgrade since last May.

The better-than-expected trading from Next, which has more than 500 stores in the UK and Republic of Ireland, followed storming five-week trading figures posted on Monday by the high street bellwether John Lewis.

Yesterday, a host of smaller retailers from SuperGroup, which owns the Superdry brand, to the jeweller Links also revealed strong sales, indicating that robust trading over Christmas and New Year has not been the sole preserve of the bigger chains. Today, Marks & Spencer is expected to announce a 1 per cent rise in underlying third-quarter sales in the UK.

Simon Wolfson, the chief executive of Next, said: "The consumer is in a much better place than one year ago. We have had nearly nine months of low interest rates, consumers have been saving more, the threat of unemployment has receded and the dire predictions that people came up with at the start of the year have not materialised."

But Mr Wolfson warned that Government action to reduce the public-sector deficit of £178bn posed a "real threat" to recovery, saying he did not "necessarily" expect the year ahead to be as good as the previous six months.

Store groups are also benefiting from comparing their recent performancce with weak sales in the final quarter of 2008. The accountant Grant Thornton said 70 per cent of listed retailers had increased their like-for-like sales – which compare sales at shops open for more than a year – in the three months to 31 December, compared with just 29 per cent a year ago.

Over the 22 weeks to 24 December, Next's underlying sales – including its online store and its Next Directory home-shopping catalogue – rose by 3.2 per cent, equivalent to a 1.6 per cent rise in stores. "[The results] are better than we were expecting and are a reflection of stable consumer environment and improved ranges on our part," said Mr Wolfson.

The retailer began its end-of-season sale with 12 per cent less stock than in 2008 and was also boosted by colder weather in the final two weeks.

Next said it was upgrading its full-year pre-tax profits estimate to between £490m and £500m, driven by strong cost savings and tight stock control. It is the fifth time it has done so in the past eight months.

Mr Wolfson said: "In terms of cost savings and stock, the business has done better than expected."

Next expects to deliver earnings per share in the range of 180p to 184p, an all-time high for the group and 15 per cent more than last year.

Mr Wolfson said homewares sales, which include its 11 standalone Next Home stores, had been helped by the demise of rivals such as MFI over the past year. He added: "Homeware has been very strong for the last six months and that is partially because we have improved our ranges and opened new stores and overall the market is more buoyant. It is not being driven by house sales. To a certain extent, we are benefiting from the environment of people dropping out of the market such as MFI."

Next's total retail sales, including new stores, rose by 4.6 per cent and directory sales were up 6.8 per cent.

John Lewis department stores saw their underlying sales surge by 12.7 per cent in the five weeks to 2 January. The group's sales were 10.4 per cent higher than in the same period in 2007, before the recession hit high streets.

SuperGroup, which owns the fashion chain Cult and intends to float on the stock market this year, said its like- for-like sales for the five weeks to 3 January were up 29 per cent. Sales at the jeweller Links rose by 28 per cent to £76.8m last year.

Away from the high street, the online and home shopping group Shop Direct posted total sales up by 6.3 per cent for the six weeks to 1 January, with its online shop being the star performer in its portfolio.