* Next H1 sales up 10.7 pct
* Ups FY pretax profit forecast to 775-815 mln stg
* Ups FY sales forecast to growth of 7-10 pct
* Shares up 2.4 pct (Adds detail, CEO, analyst comment, shares)
By James Davey
LONDON, July 29 British clothing retailer Next on Tuesday raised its guidance for annual sales and profit for the second time in three months after another strong quarter in stark contrast to rival Marks & Spencer's recent performance.
Marks & Spencer remains Britain's biggest clothing retailer by total sales but has reported 12 consecutive quarters of underlying sales decline in its general merchandise division.
In contrast No. 2 Next is flying and this year reported a bigger annual profit than M&S for the first time.
Next has a market capitalisation of about 10 billion pounds ($16.97 billion) versus M&S's 7.1 billion pounds. M&S also has a food arm.
Shares in Next, which have risen 38 percent over the last year, were up 2.4 percent at 6,675 pence at 0818 GMT.
"The Q2 update indicates that the company has significantly outperformed the market in a more difficult quarter than Q1," said Cantor Fitzgerald analyst Freddie George.
Next has outperformed rivals because of a strong online offer, a constant stream of new store openings and diversification into new product areas, such as homewares, as well as new overseas markets.
Chief Executive Simon Wolfson said the firm's second quarter had also benefited from improved design content and quality in its core ranges, the introduction of free next day delivery for collection in stores and Britain's warm summer.
"You're allowed to talk about the weather when things are good. We have had a really nice warm summer which has definitely helped sales of seasonal stock," he told Reuters.
Next, which trades from over 500 stores in Britain and Ireland, about 200 stores overseas, and through its Directory internet and catalogue business, said it now expected a 2014-15 pretax profit of 775-815 million pounds.
That compares to previous guidance of 750-790 million pounds, and would represent growth of 11-17 percent on the 695 million pounds made in 2013-14.
Next's total sales rose 10.7 percent in the 26 weeks to July 26, having been up 10.8 percent in the first quarter. Store sales rose 7.5 percent, while Next Directory sales were up 16.2 percent.
Next raised its full year sales guidance to 7-10 percent from 5.5-9.5 percent previously.
"It might appear overly cautious to forecast a full-year sales range which is below our current rate of growth," said the firm. "However, last year's first two quarters were hampered by a particularly cold Spring and Easter which presented a soft comparison for this year."
It said second-half comparative numbers are tougher, particularly in the fourth quarter.
Wolfson, a member of Britain's upper house of parliament and a prominent supporter of the Conservative Party, said he remained concerned about the prospect of interest rate rises and house price inflation getting out of control, particularly in the south east of England.
"There's no doubt that if the economy continues to perform well at some point interest rates will go up and at that point we will need to be cautious about our budgeting," he said, noting Next's demographic is particularly vulnerable to an increase in rates.
So far this year Next has paid or declared 223 million pounds of special dividends and returned 105 million pounds through share buybacks. It said it will not pay any more special dividends this year but could do more buybacks.
The group forecast full year growth in earnings per share of 12-18 percent, up from 8-14 percent previously.
($1 = 0.5892 British Pounds) (Reporting by James Davey; editing by Kate Holton, Paul Sandle and David Evans)