Marks & Spencer delivered robust Christmas trading after it benefited from customers trading up on food and clothing, although it lost up to £55m in sales because of the recent snow.
However, the high-street bellwether gave warning of "more challenging" trading conditions in the wake of pressure on consumers from the rise in VAT last week and the impact on jobs of savage public-spending cuts.
The retailer, which has more than 600 UK stores, posted a 2.8 per cent rise in UK like-for-like sales for the 13 weeks to 1 January. Its sales growth was ahead of City expectations of a 2 per cent rise, but behind the 4.4 per cent M&S delivered in the half year to 2 October. While the privately owned John Lewis and House of Fraser deliverer stronger underlying sales during Christmas, a number City analysts were encouraged that M&S reaffirmed existing guidance on profits for 2010/11.
Philip Dorgan, at Altium Securities, said: "These numbers show that M&S can cope with extremely well with difficult trading conditions."
Several retailers – including the maternity retailer Mothercare, the fashion group Alexon, and the upmarket jeweller Theo Fennell – have blamed the snow for recent profit warnings.
The snow is thought to have knocked an estimated £50m to £55m off M&S's sales during the quarter, equal to about 1 per cent on food and 3 per cent on general merchandise, which is dominated by M&S's clothing. However, the retailer said the fall on general merchandise was largely offset by M&S including the first five days of this year's clearance sale in the reporting period to 1 January, as opposed to last year.
Marc Bolland, the chief executive of M&S, said that customers had continued their "buy well, buy once" trends on clothing and "innovation was the stand-out story" on food. M&S increased UK general merchandise sales by 3.8 per cent and while the retailer said it delivered growth across all areas, it was helped by shoppers trading up. Mr Bolland said: "What we have seen in the last quarter is that people are buying at a higher price point. They are interested in more quality products [and] there is a little bit of a shift in the mix of people buying upwards so more people are buying cashmere."
M&S sold 600,000 cashmere items across womenswear and menswear in the quarter, boosted by an 11 per cent jump in sales of cashmere priced at £69 or above. Unsurprisingly given the cold snap, M&S had a record quarter for thermals, selling more than 1.7 million items in both menswear and womenswear.
In food, M&S toasted a 1.8 per cent rise in UK underlying sales, excluding VAT, which was helped by record sales of more than £50m on 23 December. Mr Bolland said that customers had responded well to its 600 new food products – equal to 10 per cent of the category – introduced during the quarter, particularly its Christmas desserts and party food. According to Nielsen, M&S grew sales by 8.1 per cent in the 4 weeks to 25 December, helped by "maintaining higher levels of promotions".
In the wake of a record level of promotions from the big supermarkets, Mr Bolland said: "We are not intending to participate in the price war but we will be competitive on staple products so people are not disappointed when they walk into our stores."
Group sales at M&S, which has more than 300 overseas stores in more than 40 countries, rose by 4 per cent.
M&s's winter warmers
600,000 cashmere knits sold across womenswear and menswear.
1.25m turkeys (whole birds, crowns and joints) soldduring the quarter, hitting a new record.
1.7m thermal garments sold across both its men's and women's clothing departments.