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The Investment Column: A test of the M&S mettle

For the ocean liner that is Marks & Spencer, a Christmas trading statement has to be pretty momentous to even register on the radar. So while yesterday's sales update was disappointing, it represented little more than a minor splash across the bows.

The shares fell 19.5p to 558p on the news that M&S group sales in the five weeks to 3 January rose 8 per cent on the same period last year and by 6.4 per cent in the 17 weeks to 24 January. Given the average increase in UK selling space was 2 per cent, the figures are hardly thrilling but after the horror stories from some other retailers they are hardly a reason to off-load the stock.

Clothing and accessories were strong while childrenswear was subdued due to tough competitive conditions, a factor that has wounded Mothercare owner Storehouse too. Home-furnishings growth slowed but that was expected after the soar-away rises of last year. Food was also a disappointment. Across the group, gross margins were maintained but the cost of marking down increased stock levels in the sales was pounds 15m more than expected.

But the big hit has been in the Far East, where sales slumped 23 per cent in local currency terms over Christmas. The financial turmoil in those markets is a serious issue for M&S, which has 10 stores in Hong Kong and is looking at mainland China, Thailand, Indonesia and Malaysia. This is part of a pounds 2bn global expansion plan by the company and while Sir Richard Greenbury, the M&S chairman, likes to invest in a downturn to be ready for an upturn this will certainly test the group's mettle.

Analysts have been shaving their forecasts for the year to March to around pounds 1120m. On a forward rating of 20 they are not worth chasing but are still a solid hold.