Ups and downs of street credibility: Next has come back from the brink to stun the City, writes Patrick Hosking

IF EVER a company embodied the spirit of the 1980s, it was Next, the fashion chain that mushroomed under the leadership of George Davies before being brought low by greed, overweening ambition and debt. If this had been Greek tragedy, Next was the Nemesis-struck corpse.

But reports of Next's death have been exaggerated. It came close to the abyss when its shares touched a low of 2 1/2 p in 1990. Yet David Jones, the certified accountant who took over from Mr Davies when he was sacked in December 1988, will this week present a set of results the envy of every fashion retailer in Britain.

While most clothing stores have seen flat or falling sales, Next is thought to have achieved same-store sales growth of around 15 per cent in the six months to July. While almost everyone else was desperately marking down prices in an attempt to lure customers, Next was postponing its summer sale by two weeks.

Marks & Spencer's decision to peg clothing prices to last year's levels or lower this autumn is testament to how tough the going is for most retailers, although clothing sales are reported to have been quite strong in August.

Next's shops have got off to a brisk start with the new autumn ranges. In women's wear, longer skirts, bodies and layered knitted outfits are selling strongly. Demand for menswear and children's wear is also healthy.

Most City analysts expect pre-tax profits of about pounds 5m-pounds 6m for the period, compared with pounds 200,000 last time. Julie Ramshaw of Morgan Stanley is even more bullish, forecasting pounds 6.8m and the reinstatement of the interim dividend at 1/2 p For the full year to January 1993, Next could make sales of around pounds 500m and profits before tax of pounds 25m.

The City has already absorbed the good news. The shares have been gaining steadily since the 1990 low and on Friday reached 97 1/2p Ms Ramshaw predicts they will breach 125p before the end of the year.

It is an impressive rehabilitation. On 1 December 1988, Next stunned the City by issuing a profits warning, citing difficulties with the launch of the Next Directory, a mail order catalogue. Ten days later Mr Davies was sacked.

But it emerged that the problems went deeper than teething troubles with the directory. There were too many stores, shopfitting costs were running out of control, product quality was suffering, there were too many different fascias (Next Originals, Next Too, Next for Men), and debt was uncomfortably high. Within 12 months it was reporting a pounds 40.7m loss.

Mr Jones's response was drastic: sell off the Grattan mail order business - almost half the company - and shut down all the unprofitable stores. Next, which had a market value of around pounds 1.3bn before the 1987 crash and was a constituent of the FT-SE 100 index, was reduced to an ailing penny share.

Mr Jones had some luck. He won a reasonable price for Grattan - persuading the German mail order company Otto Versand to pay pounds 167.5m - though still considerably less than the pounds 300m Next paid for it in 1986. He was also able to offload some of the stores before demand for high street property dried up.

His own democratic management style helped. Ms Ramshaw says: 'David Jones is very much a financial disciplinarian, but more importantly he gets excited by retailing. With chairman (Lord) David Wolfson, they've been a real Batman and Robin duo.'

Much of the success is because of attention to detail. Best-selling lines are quickly identified and repeat orders put in; there is none of the old frustration of being told a line has sold out and will not be repeated. Closer attention is paid to styling, finish and quality. Store windows are changed more frequently. In menswear, there is a broader choice - 'not just the five wide-lapelled suits that used to be just about the only product on offer', Ms Ramshaw says.

Hilary Monk, senior analyst at the retail consultants Verdict Research, says: 'They've done an excellent job in getting the business back on the straight and narrow. The only thing that worries me is where is the growth going to come from looking two to three years out?' Next cannot go down the same expansion route that failed so spectacularly four years ago, she adds.

(Photographs and graph omitted)