UPDATE 2-Britain's Next flags weaker collections in cautious outlook

* Cuts sales guidance for 2015-16

* Says ranges not as good as last year

* Says faces tougher comparative sales numbers

* 2014-15 profit up 12.5 pct

* Shares down 3.4 pct (Adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, March 19 (Reuters) - British clothing retailer Next cut its sales guidance for 2015-16, highlighting weakercollections after reporting a 12.5 percent rise in annual profitand a dividend increase.

Next, which trades from over 500 stores in Britain andIreland and almost 200 stores overseas as well as the Directorycatalogue and internet business, on Thursday forecast salesgrowth of 1.5-5.5 percent in the year to end Jan. 2016 comparedto previous guidance of 2.5-7.5 percent.

Shares in the firm, up 19 percent over the last year, weredown 3.4 percent at 7,360 pence at 0946 GMT, valuing thebusiness at 11.1 billion pounds ($16.5 billion), second only tosupermarket Tesco in Britain's retail sector.

Next forecast a pretax profit of 785-835 million pounds for the current year, a growth of 0.4-6.7 percent.

"Although the (UK) consumer economy looks benign, we remainvery cautious in our sales budgets," said CEO Simon Wolfson.

"Whilst we are happy with most of our current productranges, we recognise that some collections are not as strong asthey were at this point last year."

Wolfson explained that the 2014-15 year was exceptional inthat the firm's buyers had got "pretty much every range right".

"This year is a more normal year, we don't think we've goteverything right," he told Reuters.

Wolfson also highlighted that Next faces very toughcomparative numbers during the spring and summer seasons becauselast year's sales were helped by unusually warm weather.

However, he noted there was potential upside in the secondhalf as last year's comparative performance weakens.

Wolfson, a member of Britain's upper house of parliament anda prominent supporter of the ruling Conservative Party, said lowinflation, increasing real wages, healthy credit markets andstrong employment all painted a positive economic picture.

However, he said there was little evidence consumers werespending any increases in disposable income on clothing.

"It doesn't seem to be coming into clothing but we'll needto see everybody else's results before we know that for sure,"he said.

Marks & Spencer, Britain's biggest clothingretailer, updates on trading on April 2.

"If as good a business as Next is struggling to grow thatmuch in the current retail climate then it will be much harderfor the likes of M&S," said independent retail analyst NickBubb.

Next has outperformed rivals for a decade due to a strongonline offer, new store openings and diversification into newproduct areas, such as homewares, and overseas.

It made an underlying profit before tax of 782 millionpounds in the year to end-Jan. 2015, in line with companyguidance and up from 695 million pounds in the 2013-14 year.

Underlying earnings per share (EPS) rose 15 percent to 420pence, the dividend increased 16 percent to 150 pence a shareand the firm reaffirmed a plan to return 360 million pounds ofsurplus cash to shareholders as special dividends or sharebuybacks.

Though the firm has seen some significant recent managementdepartures, Wolfson said he remained committed to the business.

"I'm only 47 ... I have no intention of doing anythingelse." ($1 = 0.6719 pounds) (Reporting by James Davey; Editing by Vincent Baby)