UPDATE: Retailer Next Upgrades Outlook Again, 1st Half Pretax Profit +6.9%

U.K. clothing and houseware retailer Next PLC (NXT.LN) Wednesday raised its full-year profit guidance for the second time in two months, underpinned by higher-than-expected cost savings as it beat market expectations with a 6.9% rise in first-half pretax profit.

Next said it expects to deliver annual pretax profit "close" to last year's GBP429 million, subject to its sales performance in the key fourth quarter, which includes Christmas. The market consensus is just above GBP400 million.

Analysts increased their earnings estimates in July after the group raised its full-year profit guidance on better-than-expected product negotiations with suppliers and a sales boost from warm weather in May and June.

Despite the two earnings upgrades, Next said it remains "cautious" on second-half outlook. It forecasts negative retail like-for-like sales over the Autumn/Winter season, and second-half profit is expected to be flat from a year ago.

"Even if the economy technically comes out of recession, we can see no reason for the consumer outlook to significantly change through the rest of this year," Next said.

Chief Executive Simon Wolfson expects the consumer environment in the U.K. to remain "sluggish" for the next six months.

Higher taxation and a reduction in public sector employment will weigh on demand but, on the plus side, mortgages and inflation are expected to remain low, Wolfson told Dow Jones Newswires during an interview.

Next, which competes against Marks & Spencer Group PLC (MKS.LN), Debenhams PLC (DEB.LN) and John Lewis, said it is "conservatively planning" for retail like-for-like sales to be down between 3.5% and 6.5% in the second-half, while Directory sales - its catalogue-shopping and online business - to be either flat or up 2%.

For the six months to July 25, pretax profit rose 6.9% to GBP185.5 million, above market expectations of GBP181.9 million, driven by higher sales and cost savings. That compares with GBP173.5 million a year earlier. The warmer weather boosted retail sales by between 2% and 3%.

The results, which Shore Capital analyst Kate Calvert described as "excellent", and latest earnings upgrade was well received by the market with Next shares rising as much as 4.5% to 1776 pence at the open. By 0807 GMT, they were up 65 pence, or 3.8%, at 1764 pence, in a broadly higher London market.

First-half net profit rose 6.9% to GBP131.8 million from GBP123.3 million a year earlier, driven by cost savings and higher sales. The year-ago figure was hurt by a fall in sales and higher finance costs.

Revenue rose to GBP1.51 billion from GBP1.50 billion a year ago.

Given the group's strong performance, Next declared an interim dividend of 19.0 pence a share, up 5.6% from 18 pence a year earlier.