NEXT, the fashion retailer which came within a whisker of collapse in 1990, staged a dramatic recovery in the six months to 31 July, lifting pre-tax profits even higher than the City expected - from pounds 200,000 to pounds 8.3m.

The 310-store Next chain recovered from pounds 1.9m of losses last time to profits of pounds 4.1m. It bucked the flat trend on the high street, lifting sales by 14 per cent to pounds 138.4m despite 4 per cent less selling space. In August sales grew even faster.

Next Directory, the mail order business, almost doubled its profits contribution from pounds 1.4m to pounds 2.7m, while its sales were virtually unchanged at pounds 42.8m, below Next's target.

There was good news from the Club 24 division, which handles in-store credit cards for Next and other businesses. A pounds 10m provision previously set aside against possible bad debts will probably not be needed after all.

Julie Ramshaw, stores analyst with Morgan Stanley, said: 'This was a stunning performance, both in terms of sales and margin performance.' She lifted her full-year profits forecast from pounds 25.5m to pounds 28m.

The profits figure beat all forecasts and the reinstated interim dividend of 1/2 p was also higher than most predictions. The shares were marked up 3 1/2 p to 102 1/2 p.

Lord Wolfson of Sunningale, chairman, said the shops were going back to the original Next formula. He added: 'People are walking into the shops and saying, 'Ahh, this is what Next used to be like.' '

Next had gone too upmarket, assuming all its customers were Porsche drivers and forgetting it had to appeal to the mass market. Now it was reintroducing cheaper lines - pounds 30 trousers and pounds 12.99 shirts. The cheapest used to be pounds 50 and pounds 15.99 respectively.

One blemish in the figures was 'other activities'. These slumped from a pounds 200,000 profit to a pounds 500,000 deficit. This was mainly due to a loss at Callscan group, which operates computer programmes for corporate phone systems. It is in the books at pounds 6m and is for sale.

The 0.7 per cent equity stake in the satellite broadcaster BSkyB and a pounds 15.5m loan note to it have been written down to zero. The manufacturing interests in the UK and Malta were profitable.

Next is winding down its lending operation in Club 24 to concentrate on offering a bureau service to other companies.

New service contracts were signed with Cellnet and Yorkshire Electricity.

The group expects losses incurred in the past to ensure the tax charge - at pounds 900,000 this time - stays at 10 per cent for three years.