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Jul 6, 2010
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M&S to show recovery gaining momentum

By
Reuters
Published
Jul 6, 2010

(Reuters) - Retailer Marks & Spencer is set to report a third consecutive rise in underlying quarterly sales, though the rate of improvement may have slowed a little, highlighting the fragility of the consumer recovery.


Photo: Darren Staples


UK retailers are generally emerging from a deep recession but expect measures introduced in the coalition government's emergency budget to rein in a record deficit, such as tax rises and public spending cuts, will hit consumer confidence in the months ahead.

On Thursday, Debenhams, Britain's second-biggest department store group, said trading had got tougher since the June 22 budget with consumers also distracted by the soccer World Cup.

M&S, Britain's biggest clothing retailer, is forecast to report on Wednesday sales at UK stores open over a year rose 1-4 percent in the three months to end-June, its fiscal first-quarter, according to a poll of 20 analysts provided by the company.

Such an outcome would, however, represent a slowdown from growth of 5.1 percent in the final quarter of the firm's last financial year.

Chief Executive Marc Bolland, the former boss of grocer WM Morrison Supermarkets who joined M&S on May 1, will present the first-quarter trading statement but is not expected to outline his plans for the business until interim results are published in November.

He needs to revive the 126-year-old retailer's upmarket food business and take the fight to fast-growing clothing discounters like Primark.

TOUGH RECESSION BUT FIGHTING BACK

M&S shares have lost 17.5 percent of their value over the last six months, underperforming a 2 percent rise in the DJ Stoxx European retail index.

The stock closed at 332 pence on Thursday, valuing the business at 5.25 billion pounds.

M&S, which serves 21 million Britons a week from over 650 stores and also has about 300 shops abroad, endured a particularly tough recession.

It has fought back by introducing lower-priced "Wise Buys" in food, new clothing ranges like "Indigo" and revamping its Internet offer.

Like-for-like UK general merchandise sales, spanning clothing, footwear and homewares, are forecast to have increased by 1-6 percent, having surged 9.1 percent in the fourth quarter.

Food sales on the same basis are seen up 0.8-3 percent, having increased 1.8 percent in the previous quarter.

That food performance would look respectable compared to recent updates from Tesco and Sainsbury, but sluggish compared to figures from upmarket rival Waitrose, which has been one of the fastest growing British grocers over the past year.

Kanta data for the 12 weeks to June 13 showed M&S grew food and drink sales by 3.6 percent.

"This was the highest figure for two years and the fourth month of market share gain. This could provide further evidence that an inflection point in food performance has been reached," said analysts at UBS.

"Although not as conclusive, the ONS (Office for National Statistics) data for May suggests that general merchandise has also maintained its momentum."

BOARD FACES CRITICISM

M&S's board is expected to face investor ire for a third year in a row when shareholders meet for the retailer's annual general meeting on July 14.

Investor group's have criticised Bolland's 15 million pounds pay package as "excessive."

The previous two AGMs saw investor rebellions over Stuart Rose who held the roles of CEO and chairman, against corporate governance guidelines, before Bolland's appointment.

(Additional reporting by Mark Potter; Editing by Sharon Lindores)

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