In the six months to July, profit before tax dropped 9.5% to £309.3mln from the same period a year ago and total group sales fell 2.2% to £1.9bn.
Next’s own-brand full price sales edged down 1.2% and total sales, including markdowns, fell 2.3% to £1.8bn.
In its retail division, full price sales decreased 7.7% and total sales were down 8.3% to £993mln.
The Next Directory catalogue shopping arm saw full price sales growth of 7.4% and a total sales increase of 5.7% to £868.4mln as the number of active customers rose 4% to 4.9 million.
The number of customers using cash to pay for items rose 11% to 1.50mln, compared to Next’s credit account, which saw customers using this service broadly unchanged at 2.49mln.
“While the high street business continues to splutter, Next’s Directory divisions seems to have turned the corner," said George Salmon, equity analyst at Hargreaves Lansdown.
"The sunny weather of the last few months is lending a helping hand, but the decision to spend £11mln on refreshing the website, including the recruitment of 121 extra systems and marketing staff, looks like it is paying off."
Next blamed the weak sales on the consumer squeeze from falling disposable incomes. A slump in the pound since the Brexit vote has pushed inflation higher while wages rises have failed to keep up with rising prices.
In an effort to offset an increase in cost inflation Next expects to achieve cost savings of £29mln in the year to January 2018.
“Cost control remains at the heart of the business and we remain determined that cost savings must come through innovation and efficiency, rather than any compromise to our product quality or services,” the company said.
The group said it expects price inflation to “work its way out of the system” next year as the effects of the one-off Brexit devaluation of the pound starts to annualise.
Next sees price rises of no more than 2% and no price rises at all in the second half of 2018.
Next raises full year estimates
Full price sales in the second half of the year are now expected to be in the range of a 2.8% fall and 3.8% rise, after seeing an improvement in the past three months on the back of product improvements and favourable weather.
Subsequently Next has upgraded its full year estimates for full price sales to a range of a 2.0% decline and a 1.5% increase, from the 3.0% drop to a 0.5% gain it predicted in August.
Next raised its guidance on full year pre-tax profits to a range of £687mln to £747mln from a previous estimate of £680mln to £740mln.
However, the retailer warned: “The wider economic environment, clothing market and High Street look as challenging as ever, and we do not underestimate the task of managing our stores through a period of prolonged negative like-for-like sales.”
“Nonetheless, we believe our stores will remain cash generative for many years to come and represent an important asset for the group.”
While it expects the external environment to remain difficult, Next said its prospects going forward appear "somewhat less challenging" than they did six months ago.
Shore Capital reiterated a 'hold' rating and target price of 4,417p.
"We believe today's more confident outlook from management and upgraded guidance is likely to act as a stimulus for share price appreciation however there are still long-term issues for the company to address," said analyst George Mensah.
"Investors can take comfort that management has, in our view, taken a more proactive approach in addressing such issues and we believe this is a factor in the improved outlook reflected in today's statement."
Surplus cash to be returned via share buybacks
Next expects to generate about £53mln of surplus cash above the £257mln it had said it intended to distribute to shareholders through four special dividends of 45p per share.
Two of the special dividend payments have made in the year to date and a third has been declared and will be paid to eligible shareholders on 1 November 2017.
The additional £53mln will be returned to shareholders through share buybacks in the second half subject to the share price and market conditions.
Next left its ordinary interim dividend unchanged at 53p each.
Shares surged 10.12% to 4,873p in early trading.
UBS said: "With the beat to our first half estimate, good momentum into the third quarter and the guidance raise, we add £10mln to our fiscal year pre-tax profit estimate, taking us circa 1% above guidance midpoint but still comfortably within the range.We assume -8% second half retail like-for-like (first half -10%) and second half Directory full price sales growth of 7% (in line with first half)."
The bank said the main risks relate to Black Friday promotions, fourth quarter ranges and the weather.
"Momentum should also be good into the first quarter of 2019 but some industry capacity reduction is needed at some stage to take the pressure off if the market remains under pressure."