The world has changed since Simon Wolfson vowed to bring back the magic at Next at the beginning of last year, yet today’s trading update shows there are signs of life at the fashion chain.

A 4.4 per cent fall in like-for-like sales is hardly ideal but it’s better than analysts expected and, yet again, puts Marks & Spencer into the shade.

A renewed focus on younger fashion, quicker product turnaround and a greater investment in store refurbishments appears to be helping Next to weather the worst of the recession.

Nick Bubb, the retail analyst at Pali International, has taken down his profits forecasts ahead of today’s update. He has now put them back up again, expecting Next to generate £420 million in 2008-2009 and £380 million in 2010.

The shares have rallied 30 per cent recently and there is a case for further gains, given the relatively low valuation of eight times earnings.

However as Next admitted today the outlook is far from rosey. Mr Wolfson has long argued that the chain’s 25-44 year-old customer base is the most vulnerable to the fallout from credit crunch, given the higher mortgage and energy costs they face.

Moreover, the resurgent dollar looms large. Retailers expect that after years of deflation, the strong greenback will put huge pressure on costs in the second half of next year at a time when there will be precious little room for manoeuvre on the balance sheet. Next will be among the surest bets when the dust settles, but that could be a long time away. Hold.

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