Fashion chain Next says it is on track to beat annual profit forecasts after better-than-expected Christmas sales.
The fast-growing chain remained cautious about 2006, however, saying that cold weather, rather than a recovery in consumer sentiment, had driven a recent upturn in its sales.
"We saw an increase in winter clothing sales with a change in the weather before Christmas, but I think it would be a mistake to characterise that as a revival in the consumer economy," said chief executive Simon Wolfson.
Next now expects full-year profit before tax to be in the range of £435 million to £450 million, compared with analysts' current consensus of £420 million.
In the year to January 2005 Next made £423 million profit.
Next, which sells mid-price clothing and housewares, said total sales were up 9.8 per cent in the 21 weeks to December 24. Directory sales were up 13.7 per cent.
But like-for-like sales in the 251 stores unaffected by new openings were down 3.2 per cent year-on-year.
That was an improvement on the six per cent like-for-like decline for the six weeks to September 10 - Next's worst sales figure for a decade.
Despite having long been one of the sector's strongest performers, the figures prompted talk that Next was losing ground to a resurgent Marks & Spencer - due to report on its recent sales next Tuesday.
Next responded by cutting orders by five per cent in the second half to avoid being overstocked.
"We were very successful in controlling our stock levels and that meant we went into our end-of-season sale with markdowns in line with last year," Mr Wolfson said.
Analyst Tony Shiret, at Credit Suisse First Boston, recommended buying Next shares and thought they could reach £17.
"What is interesting is that both M&S and Next look like they are outperforming, whereas historically it has been one or the other," Mr Shiret said.
Next remained cautious given the difficult retail environment, saying it was budgeting for like-for-like sales to continue to run around minus three per cent over the next six months.
"Nothing has changed to improve the consumer environment," Mr Wolfson said. "We think it will remain as tough for the next six months."
In the meantime Next continues to increase the number and size of its shops, despite the fact that new stores cannibalise sales at older ones close by.
The retailer plans to rein back growth plans, opening 500,000 square feet of selling space in 2006/7 compared with this year's record 980,000 square feet.