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Apr 1, 2010
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Marks & Spencer to report improving sales trend, wary outlook

By
Reuters
Published
Apr 1, 2010

By Mark Potter

LONDON, April 1 (Reuters) - British retailer Marks & Spencer (MKS.L) is set to report an improving sales trend for the fifth quarter in a row next Thursday (8 April), though it is likely to join rivals in sounding cautious about trading prospects.



Analysts expect Britain's biggest clothing retailer to deliver a 1.7 percent rise in sales from UK stores open at least a year for the 13 weeks to March 27, the final quarter of its financial year, according to a company poll.

That would be up from a 0.8 percent increase in the third quarter, which broke a run of falling sales stretching back over two years.

Marks & Spencer (M&S) had a torrid recession. Profits plunged 40 percent in the year ended March 2009 as the firm was slow to adapt its upmarket food offer to the economic downturn and struggled to hold onto market share in clothing.

It has since made improvements, such as its lower priced "Wise Buys" in food and new clothing range Indigo.

But analysts think more needs to be done by incoming chief executive Marc Bolland, and that it won't be easy as steps to reduce government debt, like hiking taxes and cutting public spending, could hit shoppers hard.

"Q4 should be better, but don't extrapolate to 2010-11," Deutsche Bank analysts said in a research note.

M&S, which serves 21 million Britons a week from more than 650 stores and has about 300 shops abroad, may also have to increase contributions to its pension scheme following a triennial review, although analysts don't expect news on this until annual results in May.

PROFIT MARGINS

Like-for-like general merchandise sales, which include clothing and homewares, are forecast to rise 2.5 percent, boosted by the inclusion of the first day of the post-Christmas clearance sale which fell in the third quarter last year.

Clothing retailers have generally reported healthy sales in the weeks following Christmas and analysts think very cold weather could have given a particular boost to M&S due to its strength in knitwear and coats.

Like-for-like food sales are tipped to rise 1 percent.

Market researchers Kantar and Nielsen have signalled a pick up in M&S's food performance in recent weeks and analysts will want to know how much this has been driven by promotions.

Many expect the group will beat full-year guidance for gross profit margins to fall by between 50 and 100 basis points thanks to fewer markdowns in clothing compared with last year.

But some fear food gross margins may deteriorate from the 65-basis-point decline suffered in the first half.

Analysts currently expect M&S to report profit before tax and one-off items of 637 million pounds ($968 million) for the year ended March, up from 604 million the year before, according to the average estimate of 23 polled by Thomson Reuters I/B/E/S.

That is seen rising to 667 million for the next fiscal year.

M&S shares have lagged the STOXX 600 European retail index .SXRP by 15 percent this year. At 1110 GMT, they were up 0.3 percent at 371.3 pence, valuing the 126-year-old business at about 5.8 billion pounds. ($1=.6580 Pound) (Editing by Jon Loades-Carter)

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