Next cautious about outlook as sales fall

By Mark Potter

LONDON (Reuters) - Clothing retailer Next posted a 6 percent fall in first-half underlying sales, in line with forecasts, and said it expected a similar decline in the second half amid a worsening economy.

However, Finance Director David Keens told Reuters the firm was comfortable with analysts' current full-year profit forecasts and that its decision to focus on the mid-to-premium end of the mass market was bearing fruit.

"In this environment, we believe they're (shoppers) likely to buy things that really appeal to them rather than the basic necessities, which they've probably already got," he said in a telephone interview on Wednesday.

Next shares have more than halved in value over the past 15 months and underperformed the DJ Stoxx European retail index by 19 percent this year on concerns it would lose out to cheaper rivals in an economic downturn.

The stock rallied 5.5 percent in early trade, but by 10:50 a.m. had reversed to trade down 3.2 percent at 973 pence.

"We have no visibility as to when sales will start to grow again and, while management is doing an excellent job in margin control, consensus forecasts look fragile to us," said Panmure analyst Philip Dorgan, keeping a "sell" rating on the shares.

Many retailers are struggling as indebted shoppers curb spending amid higher food, fuel and mortgage costs. The Confederation of British Industry on Tuesday reported a record fall in annual sales for July.

Rival Marks & Spencer posted a 6.2 percent drop in like-for-like clothing and homewares sales in the 13 weeks to June 28, while same-store sales at discount chain Primark were close to flat in the 16 weeks to June 21.