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M&S refuses to rule out Safeway bid as sales soar

Marks & Spencer refused to rule out participating in the bid battle for the Safeway supermarket group yesterday as it reported strong sales over Christmas.

M&S is keen to expand its food and home furnishings business but declined to be drawn on whether it sees Safeway as an opportunity to accelerate its expansion. Safeway courted an M&S bid in 1998 but Sir Richard Greenbury, M&S's former chairman, decided against it. It is thought M&S might be keen to pick up some stores, which may be disposed by other bidders.

"We are making no comment on corporate activity," Roger Holmes, M&S's chief executive, said. Mr Holmes was speaking as M&S reported one of the more buoyant Christmas trading statements from the high street so far. Like-for-like sales in the seven weeks to 1 January were up 6.7 per cent on last year. No figure was given for clothing but underlying sales were thought to be up by about 8 per cent. There were also strong sales of home furnishings, where the former Selfridges boss Vittorio Radice is due to take over.

Underlying food sales were up 3.9 per cent with advance orders of items such as turkeys up 40 per cent on last year. M&S's Simply Food convenience stores performed well. It is hoping to take the concept to motorway service stations though has yet to reach an agreement.

Mr Holmes said M&S had enjoyed a good Christmas and had now achieved five consecutive quarters of strong clothing sales growth. He said market share was also up, though this had yet to be confirmed by Fashiontrak, which compiles data on the sector.

However, clothing sales in November were weaker than expected. This resulted in higher excess stock to be cleared in the sale, with markdown costs 5 per cent higher than last year.

M&S tried to reassure investors that margins would not suffer, saying it was sticking to forecasts of a 1 per cent rise in gross margins this year.

Mr Holmes was cautiously optimistic about the outlook. "It's not as buoyant as a year ago. The market is continuing to grow, but at more normal levels of around 3 to 5 per cent." Analysts were divided over the results. "Sales were much better than expected," John Baillie, at SG Securities, said. "They went into the clearance sale with more stock than anticipated and that sold very quickly."

Schroder Salomon Smith Barney increased its profit forecast from £700m to £710m. But Merrill Lynch said it was not changing its negative stance on the shares due to the likelihood of pricing pressure re-emerging this year: "Marks has been a beneficiary of customers trading up, but we are already seeing signs of this trend shifting."

The shares closed 6 per cent down yesterday at 304p.