M&S weathers the storm but expects more gloom squeeze

Marks & Spencer beat gloomy sales forecasts yesterday but warned that the retail market would get increasingly worse this year as household incomes are squeezed.

Britain's biggest clothing retailer reported flat like-for-like UK sales and an increase in market share for the final quarter of its trading year. Analysts had expected sales to fall by 2.5 per cent after a raft of downbeat statements from other retailers. The sales figures and comments on resilient margins sent M&S shares up 6 per cent and made the company the best performer in the FTSE 100 index.

Marc Bolland, M&S's chief executive, said: "After January, customer confidence has dipped – that is true. Customer confidence is low but it is stable. We have not seen [trading] hitting a wall in March or coming off a cliff in March. What we see for the next year means it will be increasingly difficult because discretionary spending will go down for customers."

M&S announced its figures as the first day of the financial year introduced a raft of spending and tax changes that will reduce household incomes.

Mr Bolland said consumers' mood had not got worse after the Budget and that customers "know the story and are getting on with it".

M&S said its average selling price was up about 6 per cent. January's VAT rise accounted for 2.5 points of the increase with most of the remainder coming from customers trading up to higher-quality goods. Margins will hold up or strengthen slightly this year, the company added.

Mr Bolland said that even though consumers were tightening their belts, they were coming to M&S for higher- quality clothes that would last more than one season as well as splashing out on food for special occasions.

He said 500,000 sales of £15 "Dine In" meals for Mother's Day boded well for business over Easter and the Royal Wedding.

"The Royal Wedding will be a very nice and good event and I expect to be trading well because people are going to buy some nice food to eat at home," he predicted.

The M&S boss, who joined nearly a year ago from Morrisons, said he wanted the company to show off its innovations.

He highlighted rising sales of comfort-based Insolia high heels, advertised by model Lisa Snowdon, and Stormwear water-resistant clothing, endorsed by the former footballer Jamie Redknapp, as examples of innovation paying off. Further features for products were in the pipeline for the next year, he added.

Like-for-like UK general merchandise sales, including clothes, fell 3.9 per cent but food sales rose 3.4 per cent.

Mr Bolland said rising commodity prices would bear down on consumers but distanced M&S from Next's prediction that clothes prices would rise up to 10 per cent this year.

"We do not believe customers will have to pay 10 per cent more with us. We will be competitive," he said. He added that for a "value T-shirt" the price of cotton was a bigger proportion of the total sales price than at M&S.

M&S shares rose 20.4p to 360.6p, their biggest gain in nearly a year.

Threat of hacking fine

Marks & Spencer could face a fine by the data watchdog after it revealed it was the first mainstream UK company to have customers' email addresses stolen from the marketing firm Epsilon, which has been raided by hackers. M&S told customers late on Tuesday and reassured them no financial data was involved.

Sarah Needham of law firm Macfarlanes said: "M&S is responsible for ensuring its customers' data remains adequately protected. It will be interesting to see if the Information Commissioner imposes a financial penalty."