M&S remains cautious despite sales surge

Marks & Spencer hailed the success of its celebrity-laden advertising campaign today as it braced itself for a tougher time on the high street.

New chief executive Marc Bolland announced a bigger-than-expected rise in like-for-like sales of 5.3% in the second quarter of the chain's financial year but warned the planned hike in VAT to 20% in January and public sector spending cuts would put pressure on household budgets.

"We are facing increased commodity prices and significantly tougher comparatives in the second half," he said. "As a result we remain cautious about the outlook for the remainder of this year and next."

The retail chain beat City expectations in the 13 weeks to October 2, with general merchandise sales up 7% and food sales ahead 3.7%.

The retailer said its adverts, which feature models Twiggy and Lisa Snowdon, as well as X-Factor judge Dannii Minogue and former footballer Jamie Redknapp, had driven more customers into its stores.

A boost in clothing market share and a record autumn season for women's footwear were put down to the latest campaign, but M&S did warn the investment in marketing would lead to operating costs at the top end of forecasts.

Mr Bolland said: "Marks & Spencer has had a good second quarter, growing market share across all parts of the business."

The new chief executive joined M&S in May, having led a turnaround of supermarket Morrisons during his tenure there.

The Dutchman is expected to outline his strategy for the retailer in November when the company presents its half-year results.

Neil Saunders, consulting director at retail analyst Verdict, said today's update had "psychological significance" for Mr Bolland and he was now faced with the challenge of sustaining the strong performance.

He said: "With the negative headwinds of government cuts on the horizon, the consumer environment is likely to become much tougher.

"Meanwhile, competition from Waitrose on the food side and many others on the clothing front is intensifying. Against this, M&S will have its work cut out to keep sales growth at such positive levels."

M&S said food market share was up slightly to 3.7%, driven by 370 new products, including ready meal and biscuit ranges, as well as its "Dine In" and "3 for £10" offers.

The online shopping division M&S Direct saw sales shoot up by 49% in the quarter, and international sales were up 6.2%, though trading conditions remain difficult in Ireland and Greece.

The update follows largely positive trading reports from supermarkets Tesco and Sainsbury's earlier in the week.

Tesco posted a 12.5% rise in half-year profits to £1.6 billion and UK like-for-like sales growth of 1.3% in the second quarter, while Sainsbury's saw accelerated sales growth of 2.9% in the same period.

In August, M&S revealed City banker Robert Swannell as its next chairman. Mr Swannell, who was a lead adviser to M&S in its defence against retail tycoon Sir Philip Green's takeover bid in 2004, will succeed Sir Stuart Rose on January 4.

Sir Stuart, who will continue as chairman until January 4, previously held the role of both chairman and chief executive. The role was split earlier in the year when Mr Bolland was brought in as new chief executive.