High street sees light at the end of tunnel at last

Store chains defy the downturn with increase in sales and profits

Four of Britain's biggest retailers gave the economy its latest shot in the arm yesterday, posting upbeat results suggesting that a consumer spending recovery is stirring on the high street.

The sportswear retailer Sports Direct and the department stores chain House of Fraser touted rising earnings, while the fashion-to-home furnishings group Laura Ashley and the chocolatier Thorntons pointed to an uptick in half-year sales.

Only Signet Jewelers, the American and British jewellery retailer, blotted the sector's copybook yesterday by posting a decline in profits and underlying sales.

While industry experts are cautious about the outlook for Christmas and 2010, given the spectre of rising unemployment and the rise in VAT from January, the retail sector – buoyed by predictable seasonal weather – has enjoyed a much rosier 2009 than many expected. Consumer spend has also been galvanised by historically low interest rates, petrol prices below their peak and a realisation that economic Armageddon has not materialised. The sector has also been boosted by a growing army of Britons holidaying in the UK this year.

Underlying retail sales slipped back by 0.1 per cent in August but this came after two months of robust growth, of 1.8 per cent and 1.4 per cent in July and June respectively, according to the British Retail Consortium. In fact, the profits upgrade by Sports Direct was just the latest by a series of retailers over the summer – including the grocer Morrisons, the fashion retailer Next, and Kingfisher, the owner of B&Q, on Tuesday.

Sports Direct, the sportswear chain controlled by the Newcastle United owner Mike Ashley, said it expected to deliver earnings before tax, depreciation and amortisation (Ebitda) of at least £150m this financial year, up from a forecast of at least £140m in July. Dave Forsey, the chief executive of Sports Direct, said: "Since the end of July, trading has continued to be ahead of last year."

Meanwhile, House of Fraser said that its Ebitda had jumped by 16 per cent in the first half of the year and that like-for-like sales – stripping out the impact of new space – were improving.

While retailers are typically a cautious bunch two chief executives dared to stick their heads above the parapet and yesterday and say the worst is over for the sector. Mike Davies, the chief executive of Thorntons, said: "There are very early signs that the worst of the recession might be over."

Lillian Tan, chief executive of Laura Ashley, added: "We believe the economic situation cannot be worse than the first half of the year, but it's uncertain how much upside there is. We hope the slight upward curve will continue."

While a lack of foreign currency hedging dragged down Laura Ashley's first-half profits before tax to £1.1m, from £4.7m last year, its like-for-like furniture sales jumped 19.1 per cent and fashion was up by 8.2 per cent.

Many of the biggest beasts in the retail sector post results this month – starting with Morrisons, Argos and Homebase-owner Home Retail, Kesa's Comet electricals chain and Carpetright today – and City analyst forecast better than expected figures. The most keenly watched results are likely to be those of high street bellwether Marks & Spencer on 30 September.

Freddie George, at Seymour Pierce, said that retailers had benefited from having tight stock levels compared with last year. This has resulted in fewer items on sale and boosted margins. "The sale period in August has been less than last year – retailers have sold through quite a lot of stock," Mr George added.

However, Signet, which operates the jewellery chains H Samuel and Ernst Jones in the UK, highlighted the challenges still facing some stores, posting pre-tax profits down by 6.1 per cent to $38.5m in its second quarter.

19%

Rise in furniture sales at Laura Ashley during the first half of the year.

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