Jan 11, 2011
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M&S sees tougher times ahead after Xmas sales rise

Jan 11, 2011

Jan 11 - British retailer Marks & Spencer does not see better-than-expected sales over Christmas extending into 2011, with trading likely to get tougher as household budgets are squeezed and commodity prices rise.

Marks & Spencer in London

"We continue to expect the trading conditions ahead to be more challenging as consumers' disposable incomes come under pressure from increased VAT rates and the impact of public spending cuts," Britain's No.1 clothes retailer said on Tuesday.

"In addition, we are facing increased commodity prices and significantly tougher comparatives."

Marks & Spencer (M&S), which also sells homewares and upmarket groceries, said sales at UK stores open at least a year rose 2.8 percent in the 13 weeks to Jan. 1, the third quarter of its financial year.

That is the fifth straight quarterly rise, above the average forecast of a 2 percent increase in a company poll of 12 analysts, but down from a 5.3 percent second quarter rise.

Retailers across northern Europe were hit by heavy snowfalls in the run-up to Christmas. Germany's Metro missed fourth-quarter sales forecasts on Tuesday, blaming bad weather, while the British Retail Consortium said like-for-like UK sales fell 0.3 percent last month.

M&S estimated the bad weather cut sales of general merchandise, which includes clothing and homewares, by 3 percent and food sales by 1 percent. But general merchandise sales were lifted 3 percent by the inclusion of more days of the post-Christmas clearance sale than the same time last year.

Britain's retailers are worried whether they will be able to pass on higher prices of commodities like cotton and wheat to cash-strapped shoppers.

Homewares chain Dunelm said on Tuesday it was cautious about its trading outlook as it reported a 1.2 percent fall in first-half underlying sales for the 26 weeks to Jan. 1.

However M&S, like rival John Lewis, may be helped by its more affluent customer base, which is coping better with austerity measures than lower income groups.

M&S, which serves 21 million Britons a week from more than 650 stores and which has about 320 mainly franchised shops abroad, said like-for-like general merchandise sales rose 3.8 percent, while food sales were up 1.8 percent on the same basis.

The 127-year-old group's shares have slipped 5 percent over the past three months, compared with a 3 percent rise in the UK general retail index, following a lukewarm reception to a big investment drive announced by new chief executive Marc Bolland in November.

M&S shares closed at 384 pence on Monday, valuing the business at about 6.1 billion pounds ($9.5 billion).

By Mark Potter and James Davey
(Editing by Alexander Smith)

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