* Q3 underlying retail sales down 4.4 percent * No change to guidance for current year * Says won't cut prices in run-up to Christmas * Sees negative underlying sales next year * Shares up 3.9 percent at 12.42 GMT
(Adds comments from finance director, updates shares)
By James Davey
LONDON, Nov 5 (Reuters) - British fashion and homewares retailer Next on Wednesday reported underlying sales at the top end of its expectations for the third quarter and said it would meet full-year profit forecasts, lifting its shares as much as 4.4 percent.
The better recent performance offset a warning from the UK's second-largest clothing retailer by sales value that underlying sales were expected to remain negative throughout 2009.
Next said like-for-like sales in 334 stores unaffected by new openings were down 4.4 percent in the 14 weeks to Nov 1.
This outcome was towards the top end of its second-half forecast range of minus 4 percent to minus 7 percent.
Sales at its Next Directory catalogue and online business were up 2.1 percent, which compared with a company forecast of flat to plus 2 percent.
Nick Bubb, analyst at Pali International, said the performance was much better than the minus 7.5 percent he had expected for Next Retail and minus 1 percent he anticipated for Next Directory.
"Improvements they've made to the ranges and store formats have perhaps begun to have some impact and begun to stabilise and improve their market share," he said.
Next expects underlying retail sales to fall by a greater amount in November and December than they did in the third quarter.
"We don't expect the minus 4.4 percent to continue through to the end of the year, because we expect the November, December run rate to be a bit worse than that," Finance Director David Keens told Reuters in an interview. Despite the expected fall in sales, he said the retailer was not planning to adjust its traditional stance of only trading at full-price in the run-up to Christmas.
"We won't change," he said.
Analysts expect Next to make a pretax profit of about 426 million pounds ($674 million) for the year to end-Jan. 2009 according to the average forecast of 18 analysts polled by Reuters Estimates, down from 498 million the year before.
They reckon Next will maintain its full-year dividend of 55 pence. The group forecast year-end debt of about 670 million pounds.
Many UK retailers are struggling as shoppers cut back on spending amid rising unemployment, falling house prices and growing fears of recession.
On Tuesday Marks & Spencer, Britain's biggest clothing retailer, posted a 34 percent fall in first-half profit and warned trading will continue to be tough until the end of next year.
"The outlook for consumer demand in 2009 is mixed," Next said in a statement, adding that lower interest rates and falling fuel and food bills would be offset by rising unemployment and falling house prices.
"On balance we therefore expect negative like-for-likes to continue throughout next year, though not necessarily at any worse rate than the current year."
Next also reiterated that the recent strength of the dollar against the pound will mean upward pressure on supplier prices throughout 2009, impacting gross margins.
The retailer will be particularly hit in autumn/winter as it is fully hedged for spring/summer.
"Back in September we were saying it is not mixed, it's just bad," said Keens.
"What we're now saying is actually you can see potentially the annualising of costs on the consumer. You can look far enough ahead to say perhaps now we can see the possibility of an upturn in the second-half of 2009."
Next's shares have lost 46 percent of their value over the last year, underperforming the DJ Stoxx European retail sector index by 14 percent.
At 1242 GMT the stock had reversed earlier losses to be up 44 pence at 1170 pence, valuing the business at 2.30 billion pounds.
(Additional reporting by Mark Potter, Editing by Greg Mahlich and Sharon Lindores)