* H1 profit 213 million sterling, up 15 percent, in line with guidance
* Says market has not got worse since early August
* Says does not expect double dip recession
* H2, FY guidance unchanged
* Shares up 4.9 percent
(Adds detail, CEO comments, updates shares)
By James Davey
LONDON, Sept 15 (Reuters) - Next, Britain's No.2 fashion retailer, said its market had not got any worse since early August and appeared to be stabilising as it met forecasts for first-half profit and detailed plans to grow earnings.
"Nothing that we've seen in our performance (since an Aug. 4 update) has changed our outlook," Chief Executive Simon Wolfson told Reuters on Wednesday.
"In our August statement we said that we'd seen a cooling of demand. We haven't seen any further deterioration. The retail environment seems to be relatively stable," he said.
Although results of UK retailers have generally started to improve following the recession, many experts think the sector faces a harsh winter as the government cuts spending and raises taxes to rein in a record public deficit.
"Next does not expect a double dip recession nor do we anticipate a meltdown in consumer spending, not least because overall employment levels are holding steady. However, we are expecting very little by way of growth in total consumer spending for the foreseeable future," said Wolfson, who was named a Conservative working peer in May.
He believes British shoppers' psyche has already adapted to more austere times and does not expect a dramatic drop in confidence when the government announces its spending review on Oct. 20.
"I don't think there's going to be a sudden moment of truth. I think that everyone is very well aware of what's going on."
However, Wolfson is fearful of a rise in interest rates, given Next's huge mortgage-holding demographic.
"I think it would hit everyone quite hard. A 1 percent rise in mortgage rates is probably going to take about 1 billion pounds ($1.55 billion) out of the economy," he said.
GROWTH OPPORTUNITIES
Wolfson said Next would seek growth by increasing retail space, especially for home products, expanding its Next Directory home shopping business and investing overseas.
These opportunities could raise sales by 2-5 percent per annum over three to five years, and increase operating profit by 2-7 percent per annum, he said.
Using surplus cash to finance annual share buybacks of 4-5 percent of Next's issued share capital would further enhance earnings per share, while total shareholder return is projected at 9-15 percent if a dividend yield of 3 percent is assumed.
Shares in Next, which prior to Wednesday's update had increased by 22 percent over the last year, outperforming a 4 percent fall in the UK general retailers index, were up 4.9 percent at 2,141 pence at 1042 GMT, valuing the business at 4.0 billion pounds.
"The success of its brands revitalisation and continued investment in the business will deliver on-going growth and improving returns despite a lacklustre consumer demand environment," said Kate Calvert, analyst at Seymour Pierce.
Next, which runs over 500 stores in Britain and Ireland, posted a 15 percent rise in pretax profit to 213 million pounds, boosted by cost cuts and margin gains. Revenue rose 5 percent to 1.59 billion pounds.
The firm maintained its guidance for the balance of the year. It expects underlying retail sales to fall by 1.5 to 4.5 percent in the second half, with Directory sales up 4 to 8 percent. It forecasts full-year profit to rise 6 to 11 percent to 535-560 million pounds, and EPS growth of 13-18 percent.
It reiterated its August warning that shoppers face a 5-8 percent rise in some clothes prices early next year as the firm passes on sharp increases in the price of cotton and overseas wage cost inflation, echoing concerns raised by Primark and Debenhams.
Next, which ended the period with net debt of 494 million pounds, hiked its interim dividend by 6 pence to 25 pence.
Separately on Wednesday British fashion group French Connection said it had swung to a first-half profit at businesses it plans to keep but had seen a drop in underlying sales in recent weeks.
For more stories on the impact of the British government's spending squeeze, click on: (Editing by Andrew Callus and Hans Peters) ($1=.6452 Pound)