UPDATE 2-Better margins a bonus for Next as Christmas sales rise

* Raises 2012/13 profit forecast to 611-625 mln pounds * Nov 1-Dec 24 total sales up 3.9 pct * Next Retail sales up 0.8 pct, Directory up 11.2 pct * Sees 2013/14 profit growth in line with sales growth of upto 4 pct * Shares up 2.3 pct By James Davey LONDON, Jan 3 (Reuters) - Next, Britain's No.2clothing retailer, nudged its full-year profit forecast higherafter an increase in sales over the Christmas period wassupplemented by improved margins due to a renewed attack oncosts. Shares in Next, which has a long-standing policy of nevergoing on sale before Dec. 26, rose 2.3 percent on Thursday,topping the FTSE 100 leader board, after it forecastprofit growth in both the 2012/13 and 2013/14 years even thoughit expects the consumer environment to stay subdued. With Britain facing a possible triple-dip recession, manyretailers have been finding the going tough as consumers fretover job security and a squeeze on incomes. "I think it is getting slowly better in that the differencebetween inflation and wages is narrowing and I think willprobably continue to narrow," chief executive Simon Wolfson toldReuters. "But certainly for the rest of 2013 I still think realincomes will drop, albeit at probably a lower rate than theyfell last year," said Wolfson, a supporter of Britain's rulingConservative Party, who sits in the upper house of Parliament. Next has generally defied the economic gloom, helped by itsstrong online offer, a constant stream of new store openings anddiversification into homewares and overseas markets. On Wednesday, John Lewis, Britain's largestdepartment store group, posted record Christmas sales, driven bystellar online trade. That performance was mirrored on Thursdayby upmarket grocer Waitrose, which is also part of the JohnLewis stable. Kicking off the post-Christmas retail reporting season forlisted companies, Next said total sales, excluding VAT salestax, rose 3.9 percent in the Nov. 1 to Dec. 24 period. That compared with an increase of 2.7 percent in its thirdquarter, giving a year to date rise of 3.9 percent - in linewith guidance of 3.0-4.5 percent. Sales at Next's over 500 stores in Britain and Ireland rose0.8 percent in the November, December period while sales at theDirectory home shopping, internet and catalogue businessincreased 11.2 percent. Although sales were in line with internal expectations, costcontrol measures, markdowns and gross margins were all slightlybetter than expected, the firm said, adding that itspost-Christmas Sale had started well. Wolfson said a host of costs, such as in warehousing,distribution and store operations, had come in below budget.Further cost savings have been identified for the 2013/14 year. Next now expects a year to end-Jan. 2013 pretax profit of611-625 million pounds ($995 million-$1.02 billion), up fromprevious guidance of 590-620 million pounds. It forecast earnings per share growth for 2012-13 of 14-17percent, partly reflecting a 241 million pounds share buyback. Shares in Next, up 38 percent over the last year, were up 84pence at 3,856 pence at 1122 GMT, valuing the business at 6.2billion pounds. "Next remains our top pick of the FTSE 100 Retailers, a coresector holding underpinned by a flexible store base and thebenefits of Directory," said Peel Hunt analyst John Stevenson,who raised his 12-month target price to 4,000 pence. For the 2013-14 year the firm guided to sales growth of1.5-4.0 percent, with profit up in line with sales and a further250 million pounds of share buy backs. "International and online will continue to grow and we willcontinue to open profitable new space," said Wolfson, flagging250,000 square feet for 2013-14, with new space skewed to thehome area. He said Next was not seeing any rise in the cost of itsspring/summer stock, a lot of which has already been purchased. "So we can say that with some certainty there will be zeroinflation in the price of spring/summer stock in like-for-likeproduct."