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M&S to spread a little warmth as cold snap hits January sales

Tim Webb
Sunday 08 January 2006 01:00 GMT
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Marks & Spencer, whose share price has now passed the 500p offered by the Arcadia tycoon Philip Green in 2004, is set to report improved Christmas trading this week following last year's profit warning.

The high street chain's third-quarter results, due out on Tuesday, cover the crucial Christmas period. They will shape investors' expectations for other retailers reporting over the next fortnight.

The City expects that the figures will confirm that M&S's revival under Stuart Rose is slowly continuing. Mr Rose became chief executive 18 months ago to fight off a hostile takeover bid from Mr Green. Analysts are forecasting that the company will report underlying sales for the last 13 weeks of the year up by around 1.7 per cent.

Sales of food, which makes up around a third of M&S's profits, are expected to be up by 3 per cent. While clothing sales are likely to be flat, margins are forecast to be up by around 3 per cent because the retailer did not need to resort to the heavy discounting seen last year.

In its previous post-Christmas trading statement, M&S admitted it had too much stock in the run-up to Christmas. This meant it had to slash prices yet again in the sales, at an extra cost of £40m.

However, the retail analyst Richard Ratner at Seymour Pierce said that, this time around, scope was limited for further improvements in profitability: "A lot of Stuart Rose's quick fixes have already been done - like better buying and cutting out layers of management. I think shares are running ahead of the game. It would not surprise me if they stay the same for the next year."

Tomorrow, the British Retail Consortium will publish its sales figures for December. Nick Bubb from stockbroker Evolution said he expected underlying sales to be up on December 2004 by around 0.5 per cent, although some other analysts expect a lower increase. The BRC, the retail trade association, has not reported positive underlying sales figures for the crucial month of December since 2002. It reported that last Christmas was the worst for retailers in more than 20 years.

Expectations were raised of a bumper festive period on the high street after a busy start to the January sales. But the numbers of shoppers soon trailed off, not helped by the cold snap, and analysts now expect only a modest improvement on last year.

Mr Bubb from Evolution said: "There has been a lift to the consumer mood, but it's a mixed story. There will be winners and losers."

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